Dror Poleg tag:www.drorism.com,2009-03-09://1 2012-03-20T00:00:41Z Movable Type Pro 4.25 Israel vs. Iran: An Alternative View. tag:www.drorism.com,2012://1.776 2012-03-19T13:43:54Z 2012-03-20T00:00:41Z It is likely that Iran is developing and acquiring nuclear capabilities in order to produce nuclear weapons. Iran's current rulers have been vocal and consistent in their calls for Israel's destruction. Such statements have gone beyond what is considered... Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1

hiroshima.jpg
It is likely that Iran is developing and acquiring nuclear capabilities in order to produce nuclear weapons. Iran's current rulers have been vocal and consistent in their calls for Israel's destruction. Such statements have gone beyond what is considered acceptable in the arena of international relations. Iran actively and openly supports violent activities against Israeli civilians via proxies in Lebanon, Gaza, and elsewhere. Iran undermines Lebanon's sovereignty and national security by funding and supplying a local army not controlled by that country's government; it undermines a potential peace agreement between the Israelis and Palestinians by encouraging and facilitating the latter's choice of violent resistance and denial of Israel's right to exist within any borders. It is possible that Iran will soon enter a "zone of immunity", following which it will not be possible to thwart its efforts to acquire nuclear weapons. 

Israel should not attack Iran. Nor should it solicit American action to that end. Based on historical precedents, if Israel had a surgical way to thwart Iran's nuclear ambitions, it would have done so already. Hence, on the assumption that such an elegant solution is not available, the cost of an Israeli strike does not seem commensurate with the reward. Further, the potential cost, and likelihood, of living with a nuclear Iran does not seem high enough to justify a wager of this kind.

]]> Let's look at the best case scenario of an Israeli attack: Following a successful strike, Israel remains the region's sole nuclear power. The ensuing response from Iran's proxies provides the Israeli government with political capital to act against the hoards of short and medium range missiles in Lebanon and Gaza (and possibly Syria), leaving the country's enemies diminished. The morning after the war Israel will still be surrounded by failed states and restive populations on track to become proxies of the region's next "rogue state"; Israel would still be isolated, insecure, and its right to exist would still be questioned (probably for illegitimate reasons, but questioned nonetheless); Israel would still be a thriving liberal democracy surrounded by despots that rely on the vilification of the Jewish state to retain their power. Such despots - in Syria, Saudi Arabia, Egypt, New Libya, or even a post-war Iran - may choose to develop or acquire nuclear weapons at any given moment. They may do so faster and more clandestinely than Iran. To use two recent examples, Libya was on the verge of developing nuclear weapons until it voluntarily gave up its program, and Syria was not far behind and was set back only thanks to a singular intelligence effort.

Let us consider a less ideal scenario: Imagine a world containing a large muslim country armed with nuclear weapons; a country that does not formally recognize Israel's right to exist; a country that supports Israel's enemies and provides training grounds and equipment for insurgents bound for Lebanon and Gaza; a country that harbors terrorists and undermines US and Israeli interests; a country that does not share a border with Israel, but is close enough to launch missiles. 

In fact, the previous paragraph describes a country that already exists - Pakistan. Pakistan became a nuclear power during the previous decade. This did not make the world a better place, but it was not the end of the world either. True, Iran is not Pakistan. The latter's ambitions are tempered by strong neighbors (India, and to a lesser extent, China) and the former's rhetoric and support of attacks on Israeli civilians have been more pronounced; Iran is, at least putatively, guided by religious clerics while Pakistan, also putatively, is a secular state controlled by generals. All that does not detract from the comparison. The world is not likely to end the day Iran acquires nuclear weapons.

Pakistan and Iran have another thing in common: Both developed their nuclear programs while America was busy invading their neighbors; both benefited directly by freeing resources that were previously dedicated to tensions along their borders, and indirectly by staying out of the limelight while the international community was busy elsewhere. Pakistan also benefitted from its status as a US ally vis-a-vis Afghanistan, while Iran gained precious time by letting on that it might one day become such an ally vis-a-vis Iraq.

Nonetheless, the risk of Iran obtaining nuclear weapons is severe. It would change the global balance of power, but it is important to acknowledge that the balance has already changed. Nuclear weapons, like luxury goods, were once produced only by the world's leading countries (even the USSR was at the height of its power when it developed them). Back then, being a nuclear power meant being a member of a small and prestigious circle, admission to which was contingent on an approval - by commission or omission - from existing members. In the current age of free-flowing information and capital, nuclear warheads are not the trump card they once were. They no longer guarantee geopolitical status. In a multipolar world - and potentially at the hands of non-state actors - a notion of global stability under a nuclear cloud of Mutually Assured Destruction is no longer valid. Whether we like it or not, the only thing nuclear weapons contribute to is the likelihood of death and destruction.

Thus, it is in the interest of the world - including established and nascent superpowers - to pursue nuclear disarmament across the board. American (or Chinese, or Israeli) military power is awesome enough without nuclear weapons and is enough of a threat against a sovereign aggressor. Against non-state entities, the threat of nuclear retaliation is anyhow irrelevant. The world should be free of nuclear weapons altogether. We are not great fans of the United Nations, but if that organization should exist, it has no greater mission. Ironically, the fact that the UN is now largely controlled by the world's rogues and disenfranchised can facilitate resolutions to that end. The fact that China's nuclear arsenal is far smaller than America's might encourage the former to support such an initiative. Following the surprise attacks of September 2011 and the US Army's growing engagement with non-state actors,  the American public might also warm up to the vision of a nuclear-free world. The other nuclear powers will follow a Chinese and American lead.

It would be a great challenge to clear the world of nuclear weapons, but it is not beyond imagination. It would cost less, do more good, and garner more public support than the current crusade against fossil fuels. Israel and the US, two of the world's leading proprietors of renewable energy technologies (and of natural gas), could lead the initiative. China, the world's most dependent energy consumer, could also play a leading role. With the Middle East on the brink of a nuclear arms race, a major war, or both - timing has never been better.

]]> Godless. tag:www.drorism.com,2011://1.770 2011-12-18T08:03:33Z 2011-12-25T08:04:39Z Interesting that Christopher Hitchens and the Iraq War "leave" us on the same day. Hitchens wrote a lot about religion being the cause of all bloodshed in the world, but also described himself as a "single-issue voter", with the issue... Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1
Interesting to see how a man who calls himself an "enlightened" rationalist is so lacking in irony and cannot notice that his own warmongering serves and facilitates all the violent, irrational elements of society that he blamed "religion" for nurturing.

There is no "secularism"; All humans are prone to adopt dogmas and anoint idols. All humans are prone to errors of judgment, guided by fear. Faith is the realisation that the world goes on turning without you and that it is futile to try to control it (and those in it). People with and without Faith can be found in both the secular and religious world. Hitchens, I suspect, was driven by fear. May he rest in peace.
]]> Blank Checks and No Balances: Why Governments will Continue to Print Money tag:www.drorism.com,2011://1.764 2011-12-01T23:04:13Z 2012-02-08T00:33:30Z The newspapers are filled with stories of governments spending money they don't have. Some blame it on work ethic (Greece), historical trauma (Germany), political gridlock (US), or just sheer frivolity (Italy). The assumption is that political change will bring about... Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1 clean.jpgThe newspapers are filled with stories of governments spending money they don't have. Some blame it on work ethic (Greece), historical trauma (Germany), political gridlock (US), or just sheer frivolity (Italy). The assumption is that political change will bring about a change in spending patterns. It won't. Politicians take on obligations they can't afford for one simple reason: Because they can.

Throughout history, kings and politicians used paper derivatives of real money to finance their pet projects and wars. In the past, however, their ability to do so was limited by technological constraints (even paper money takes time and resources to produce), competition (the availability of other, more "solid' currencies), and the fact that large parts of the global economy relied on barter trading or other means of exchange and not on official currencies.

]]> Today, technology allows governments (and banks) to create trillions in new money at the click of a button; all currencies are controlled by an inter-government cartel that prevents competition (once the Americans start debasing their currency, the Europeans follow, as do the Japanese, Chinese, etc. so savers have nowhere to "hide"); and the global economy relies overwhelmingly on government-sanctioned money.

The only way to stop governments from living beyond their means (at the expense of our futures) is to move towards a global currency system that constrains their ability to "create" money. One way of doing so is by tying currencies back to a basket of commodities or a single commodity (gold, for example). Our politicians, and the other beneficiaries of the current monetary system (financial, military industries etc.) are not likely to give up their privilege freely. And so, a new monetary order is likely to emerge only once the current one collapses, either directly through a currency crisis or indirectly through a global war. Brace for impact.
]]> The Centre Cannot Hold: Why Did Cities Become So Big in the 20th Century tag:www.drorism.com,2011://1.763 2011-11-23T16:39:40Z 2011-11-23T16:58:03Z Throughout history, cities have been at the centre of human development, rising and falling in line with the fortunes of different societies (Hall 1998). Urban life has been studied within a variety of disciplines - anthropology, sociology, politics, architecture, geography,... Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1 cities.jpgThroughout history, cities have been at the centre of human development, rising and falling in line with the fortunes of different societies (Hall 1998). Urban life has been studied within a variety of disciplines - anthropology, sociology, politics, architecture, geography, and economics. Scholars have used urban analysis for diverse purposes, from predicting troughs in the business cycle by observing skyscrapers (Thornton, 2005) to writing "personal" biographies of individual cities - most recently Jerusalem (Sebag Montefiore, 2011). Within economic history, the study of cities focuses on the relation between urbanisation and development, and more specifically on the study of factors such as employment, wages, disposable income, access to capital and public goods, as well as more general economies or diseconomies of urban density and agglomeration of industry. 

]]> Over the last two centuries, the world has undergone an unprecedented and rapid process of urbanisation: Less than 10% of the population of England, and probably less than 3% of the world's population, lived in urban settlements in 1800 (Hoyt, 1963: 179) and today more than 50% of humanity lives in cities (UN DESA 2009). While the move towards urbanisation has been universal, it was (and still is) characterised by discrete features across geographies and historical periods. The variance in key drivers, pace, composition, and, indeed, outcomes of urbanisation seems to divide, crudely, into two eras, each with its own protagonists and characteristics. As Clark points out, "urban development was largely confined to developed countries" before the middle of the 20c, but has since "spread to developing countries" (1998: 85). In this short essay, we will provide an overview of the theory concerning the drivers and patterns of urban development within the context of economic history; proceed with a thematic examination of several factors - employment prospects, government policy, technology, mortality and fertility - affecting the development of urban centres; and conclude with a summary of the reasons for urban growth in the second half of the 20c in comparison to the previous era. 

 The story of urbanisation is intertwined with the story of global industrialisation, and one is often described as the driving force behind the other: Development economists such as Simon Kuznets and Arthur Lewis saw urbanisation as a "positive force in economic development" and "an integral part of economic growth and distributional change (including poverty reduction) in poor countries" (Ravallion et. al. 2007:667); Acemoglu, Johnson, and Robinson relied on population density to assert that urbanisation can serve as a reliable proxy for income per capita in their historical study of institutions, geography, and income distribution (2002: 1242-43); and Maddison, who compiled time series estimating GDP per capita across the globe over the last three centuries, pointed out that people in countries with higher urbanisation rates tend to trade more with each other, with a higher proportion of that trade being in services (Maddison 1983: 37 and footnote no. 12.). Other observers noted that while the world's poor were indeed once "huddled largely in rural areas", they have since "gravitated to the cities" (1997:58). Yet, following a survey of living conditions in 90 countries, Ravallion et al still estimate that "about three-quarters of the developing world's poor... live in rural areas" (2007: 693). This assessment, however, relies on a specific set of definitions of both poverty and urbanisation. Indeed, the study of urbanisation and development is overshadowed by several methodological challenges including the lack of reliable comparable data, a lack of a common standard definition for an "urban" area and of poverty1, and the lag in availability of data (Hohenberg & Hollen Lees, 1995: 218)*. 

 While the jury is still out on the exact relation, if any, between urbanisation and industrialisation, the scholarly interest in this subject over the past 60 years seems to be among the causes - perhaps a symptom - of one of the unique features of urban growth in late-developing countries: A growing attempt to plan and control urban development based on one theory or the other, often with severe unintended consequences. We will go over some examples of this phenomena below, but first let us summarise the less controversial aspects of the relevant theories concerning urbanisation. In Principles of Economics (1920), Alfred Marshal provided "the first careful economic analysis of agglomeration economies, arguing that cities enhance productivity by allowing for labor market pooling, input sharing, and technological spillovers" (Rosenthal & Strange, 2003:377). And indeed, a variety of empirical studies found "positive correlation between agglomeration and aggregate growth" (Martin & Ottaviano 2001: 967), and elaborated on the positive human capital externalities associated with urban industry (Ciccone & Perri 2005). Still, it would be wrong to conclude that growth in urbanisation, for better or worse, always goes hand in hand with economic development or industrialisation. As Hohenberg and Hollen Lees (1995) point out, urbanisation pattern in now-developed countries only started to show a clear link with industrialisation around the time of the 2nd Industrial Revolution in the late 19c, following two phases of urban growth driven by (1) proto-industrialisation surrounding existing urban centres and (2) proximity to natural resources. Looking beyond the relation between urbanisation and development, city life was historically associated with a variety of negative factors, broadly known as the "urban penalty", which we will touch upon in our discussion of population growth below. Overall, the existing theory provides a useful framework for ex post analysis of development but not a predictive, or even prescriptive, model. 

 We now turn to examine the growth of urban centres in the second half of the 20c. In 1970, only 25% of the population of the world's less developed regions lived in cities, compared to close to 40% by the end of the millennium; for the world's more developed regions, the figures were 67.5% and close to 90% respectively (Pacione, 2009: 71). This increase in the percentage of urban living corresponded with a virtual doubling of overall global population. Cities are also becoming larger: As Pacione points out, "the average population of the world's largest cities was over 5 million inhabitants in 1990, compared with [only] 2.1 million in 1950, and less than 200,000 in 1800". The number of cities with 8 million or more inhabitants is also increasing rapidly, particularly in late developing countries (p.74). The rise of the late-developing "megalopolies" is apparent when examining the list of the world's largest urban agglomerations: while in 1950 the majority of the top 15 cities on the list were in relatively developed countries, by 2000 the only developed survivors on the top 15 were Tokyo, Osaka, New York, and Los Angeles, as well as Seoul, the capital of South Korea, which is now considered a capital of a developed country. 

 As we alluded to above, urban migration was historically associated with superior employment possibilities. And, as Todaro and Smith points out, rural-urban was still "primarily an economic phenomenon" in the second half of the 20c (2000: 345). However, while urban industry generally affords markedly higher wages, it is also plagued with a relatively high unemployment rate and thus provides a mixed basket of incentives for migration. Nonetheless, it is still attractive compared to rural employment and, as the Todaro model suggests, "proceeds in response to urban-rural differences in expected income [sic.] rather than actual earnings", meaning that the "individual must balance the probabilities and risks of being unemployed or being underemployed for a considerable period of time against the positive urban-rural real income differential" (Todaro & Smith, 2000: 345-6). And so, the model assumes, rural-urban migration might "continue even if the urban unemployment rate were 30% to 40%" (p.347). The prevalence of high urban unemployment in the second half of the 20c - often described as a market failure - is partially explained by the theory of Efficiency Wages, an attempt to model the way in which firms respond to changes in demand by cutting their workforce and not by reducing salaries (Weiss, 2008), and governments have tried to alleviate this tendency in a variety of means including wage subsidies, production subsidies and tariffs (Chin, 1998: 295). 

 The relatively high unemployment rate in 20c urban areas is associated with a large informal sector, another unique feature of late developing countries. As La Porta and Shleifer points out, "in developing countries, informal firms account for up to about half of all economic activity", which carries with it a variety of negative implications for health and safety, insurance, tax evasion, and lower overall productivity (2008: 275). In consequence, "the size of the informal economy is strongly negatively correlated with income per capita" (p. 284), and young labor from rural and semi-rural areas often forms the low-earning strata of the urban labor market. This is the case in India (Shaw & Pandit, 2001:180), China (Wong et al, 2006), as well as in other developing countries. While migration to now-developed countries in the 19th and early 20c was largely a family affair, in many LDCs it was often driven by individual migrants, with gender being a significant factor in driving and shaping migration patterns: In the Philippines, to cite one example, the "notion that migrants tend to enter the urban occupational structure through the informal sector seems to apply mainly to female migrants" (Koo & Smith, 1983: 219) in line with broader cultural and historical drivers on inequality in Asia (Bauaer et al, 1992); in Latin America, to cite another example, "practices and beliefs in the home and community.... construct gender ideologies which undervalue the work of women. Enterprises then take advantage of the cheapness of women's labour and so reinforce the ideology of undervaluation" (Watson in Gilbert, 1994: 619); and so, the general inequities and inefficiencies of the informal sector are exacerbated. In addition, advances in banking and communication technologies make it easier for families to live on the edge of the urban world, with one of the spouses working in the city and supporting the other members through remittances. This has become one of the common features of reform-era China (Li et al 2001: 205; Qian, 2003; ). 

 Beyond individual perceptions and biases, government policy played a significant role in shaping late urbanisation, both directly and through path dependencies associated with colonial rule. As Preston (1979) points out, colonial heritage was a key driver of "giantism", a bias towards larger cities, in Latin America, and the extreme coastal concentration of some of the region's large cities can be explained by "trade relationships and natural resource exploitation by colonial powers" (Hardoy in Preston 1979:200). Such colonial "mementos" are not unique to latin America; the overdevelopment of Jakarta, one of the Asia's largest cities, was previously promoted by the Dutch who concentrated their administrative bureaucracy in the city, a tendency that was later "exacerbated under local rule" (Hugo in Preston 1979:200). As we noted above, studies and perceptions linking urbanisation with development also contributed their share, driving and justifying "exaggerated bias of government expenditures on infrastructure and services in favour of urban areas" (Clark 1998:93), perhaps in the hope that urbanisation will bring about development. On the other hand, China, for example, limited internal migration by enforcing a dual-system of urban and rural social services. More broadly, the general increase in government involvement in economic and social affairs, and the authoritarian nature of many of the world's LDCs meant that growth in the second half of the 20c was less organic and dispersed than in the previous era and more prone to unintended consequences. This includes a marked bias towards larger of 'first-place' cities who received "a disproportionately large share of public investment and incentives for private investment" (Todaro & Smith 2000:332). Apart from government attempts to shape and control migration, urban congestion suffered "collateral damage" from other policies that affect the economy as whole, such as attempts to promote more value-added production, and promotion of specific industries (Chen, 2006). 

 Some have suggested that the factors driving the growth of urban centres may soon be undermined by a powerful counterforce -- technology. In The Death of Distance (1997), Frances Cairncross describes a future in which cities will become entertainment and civic activity centres and governments in "poor countries will stem the flight from the countryside... by using low-cost communications to provide rural dwellers with better medical services, jobs, education, and entertainment" (p. XV). Others, in contrast, pointed out that while some of the advantages of cities as centres of industry are no longer as pronounced, "agglomeration economies will continue to be large... information spillovers will continue to be important and telecommunications may end up helping, rather than hurting, cities" (Glaeser, 1998:157). The question is far from answered, but circumstantial evidence suggests that even the most "virtual" industries such as online services and telecommunications tend to concentrate in, and often drive the growth of, urban centres, wether it is in Silicon Valley, Bangalore, Hangzhou, or Tel Aviv. 

 So far, our analysis concentrated on factors that affected migration to urban areas; before we conclude, we must turn our attention to a more internal driver of growth. As we noted in the introduction, cities were historically associated with several negative externalities that adversely affected human health. These include(d) air and water pollution and a variety of diseases that thrived on population density. However, while in the 19c urban life was markedly shorter and more disease-prone relative to rural life, the turn of the century saw a significant decline in urban death rates (Schofield et al, 1999; Hubbard 2000), and, more recently, "the concentration of people and resources in cities, has been a dominant [positive] influence on health" (Freudenberg et al 2005: 1). In China, for example, mortality declined significantly in the second half of the 20c, in line with dramatic increases in urbanisation (Banister & Hill, 2004), and in the UK, to cite an example from a developed economy, a recent study found that urban mortality rates in urban and rural areas are relatively similar, albeit with significant differences in causes and following certain adjustments (Gartner et al, 2008). And so, while urbanisation is not necessarily a driver of declining mortality rates, improvements in sanitation and medical services mean that organic growth played a more significant role in recent decades than 100 years ago. 

 In conclusion, the growth in the world's major urban centres in the twentieth century was driven by unique factors that differed considerably from those driving urbanisation in the 19th and early 20c. These include differences in employment prospects and perceived benefits, driven in part by distortions due to more competitive industry; path-dependencies from the colonial era; a more aggressive role played by government, characterised by direct policies to promote urban development and specific urban centres as well as by broader policies to promote urban-related industries; migration patterns, revolving around individuals and specific gender roles and less about families; and a somewhat more organic growth pattern following advances in sanitation and medical services. Since WWII, technology has also played a limited, if increasingly important, role in shaping urbanisation, but its influence does not yet lend itself to theoretical generalisations. The drivers of urbanisation in late developed countries have, in turn, affected overall development as well as brought to the fore each country's failures and successes.

____

* See, for example, a current list of country-by-country definitions of "urban" compiled by the United Nations Statistics Division: http://unstats.un.org/unsd/demographic/sconcerns/densurb/Defintion_of%20Urban.pdf 

Acemoglu, D., Johnson, S., & Robinson, J.A. (2002). "Reversal of Fortunes: Geography and Institutions in the Making of the Modern World Income Distribution". The Quarterly Journal of Economics. Vol. 117, No. 4. pp. 1231-1294. 

 Ali Khan, M. (2008). "Harris-Todaro hypothesis." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and 

Lawrence E. Blume. Palgrave Macmillan, 2008. Accessed online on February, 27, 2011 [http://www.dictionaryofeconomics.com/article?id=pde2008_H000022] 

 Bauer, J. & Wang, F. & Riley, N.E. & Zhao, X. (1992). "Gender Inequality in Urban China: Education and Employments". Modern China. Vol. 18, No. 3. Sage Publications. pp. 333-370. 

Beauregard, R. & Maila, A. (2000) 'The Unavoidable Continuities of the Cities' & 'Conclusion' in P. Marcuse & Rvan 

Kempten, Globalizing Cities Bannister, J. & Hill, K. (2004). "Mortality in China 1964-2000". Population Studies. Vol. 58, No. 1. Population Investigation Committee. pp. 55-75. 

 Brunn, S.D. and Williams, J.F. (1993). Cities of the world: world regional urban development. New York: Harper Collins. 

Cairncross, F. (1997). The Death of Distance: How the Communications Revolution Will Change Our Lives. Harvard Business Press. 

 Chen, Aimin (2006). "Urbanization in China and the Case of Fujian Province". Modern China. Voll. 32, No. 1. Sage Publications. pp. 99-130. 

 Chin, J.C. (1998). "Rural-Urban Wage Differentials, Unemployment, and Effeciency Wages: An Open Economy Policy Analysis". Southern Economic Journal. Vol. 65, No. 2. Southern Economic Association. pp. 294-307. 

 Ciccone, A. & Perri, G. (2005). "Identifying Human-Capital Externalities: Theory with Applications". The Review of Economic Studies. Vol. 73, No. 2. Oxford University Press. pp. 381-412. 

 Clark, D. (1998). "Interdependent Urbanization in an Urban World: An Historical Overview", the Geographical Journal. Vol. 164, No. 1. pp. 85-95 

 Davin, D. (1999). Internal Migration in Contemporary China. Palgrave Macmillan. 

 Freudenberg, N., Galea, Sandro, & Vlahov, D. (2005). "Beyond Urban Penalty and Urban Sprawl: Back to Living Conditions as the Focus of Urban Health". Journal of Community Health. Vol. 30, No. 1. Springer Health. 

 Gartner, A. & Farewell, D. & Dunstan, F. (2008). "Differences in mortality between rural and urban areas in England and Wales, 2002-2004". Health and Statistics Quarterly. pp. 5-13 

Gilbert, A. (1994). "Third World Cities: Poverty, Employment, Gender Roles and the Environment during a Time of Restructuring". Urban Studies. Vol. 31, Nos. 4/5. pp. 605-633. 

Glaeser, E. (1998). "Are Cities Dying ?", Journal of Economic Perspectives, 12(2), 139-160 

Glassman. J (1999). "Review - Asian Metropolis: Urbanization and the Southeast Asian City by Dean Forbes", Economic Geography. Vol. 75, No. 3 (Jul., 1999), pp. 297-298 

Hoyt, H. (1963). "The Growth of Cities from 1800 to 1960 and Forecasts to Year 2000". Land Economics. Vol. 39, No. 2. University of Wisconsin Press. pp. 167-173. 

Hubbard, W.H. (2000). "The Urban Penalty: Towns and Mortality in Nineteenth-Century Norway". Continuity and Change. Vol. 15, No. 2. Cambridge University Press. pp. 331-350. 

Hall, P. (1998). Cities in Civilization. New York: Pantheon 

Hohenberg, P. and Hollen Lees, L. (1985) The Making of Urban Europe, 1000-1950. Cambridge, MA: Harvard University Press. 

Jacobs, J. (1970). Economies of Cities. London: Cape. 

Kasarda, J.D. & Crenshaw, E.M. (1991) "Third World Urbanization: Dimensions, Theories, and Determinants", Annual Review of Sociology. Vol. 17, pp. 467-501 

Koo, H. & Smith, P.C. (1983). "Migration, the Urban Informal Sector, and Earnings in the Philippines". The Sociological Quarterly. Vol. 24, No. 2. Blackwell Publishing. pp. 219-232. 

La Porta, R. & Shleifer, A. (2008) "The Unofficial Economy and Economic Development." Brookings Papers on Economic Activity. pp. 275-363.  

Li, H. & Waley, P. & Rees, P. (2001). Resettlement in China: Past Experience and the Three Gorges Dam. The Geographical Journal. Vol. 167, No. 3. Blackwell Publishing. pp. 195-212. 

Maddison, A. (1983). A Comparison of Levels of GDP Per Capita in Developed and Developing Countries, 1700-1980. The Journal of Economic History. Vol. 43, No. 1, The Tasks of Economic History. Cambridge University Press. pp. 27-41. 

Martin, P. & Ottaviano, G.I.P. (2001). "Growth and Agglomeration". International Economic Review. Vol. 42, No. 4. Blackwell Publishing. pp. 947-968. 

Pacione, Michael (2009). Urban Geography: A Global Perspective. Taylor & Francis. 

Piel, G. (1997). 'The urbanization of poverty worldwide". Challenge. Vol. 40, No. 1. pp. 58-68. 

Preston, S. (1979). "Urban Growth in Developing Countries: a Demographic Reappraisal". Population and Development Review. Vol. 5, No. 2. Population Council. pp. 195-215. 

Qian, C. (2003). "Migrant remittances and family ties: a case study in China". International Journal of Population Geography. Vol. 9, Issue 6. Wiley. pp. 471-483. 

Ravallion, M., Chen, S.H., & Sngraula, P. (2007). "New Evidence on the Urbanization of Global Poverty". Population and Development Review. Vol. 33, No. 4. Population Council. pp. 667-701. 

Rosenthal, S.S. & Strange, W.C. (2003). "Geography, Industrial Organization, and Agglomeration". The Review of Economics and Statistics. Vol. 85, No. 2. MIT Press. pp. 377-393. 

Sebag Montefiore, S. (2011). Jerusalem: The Biography. London: W&N / Orion Publishing. 

Schofield, R. & Reher, D. & Bideau, A. (1991). The Decline of Mortality in Europe. Oxford University Press. 

Shaw, A. & Pandit, K. (2001). "The Geography of Segmentation of Informal Labor Markets: The Case of Motor Vehicle Repair in Calcutta". Economic Geography. Vol. 77, No. 2. Clark University Press. 

Skeldon, R. (1993) Population Mobility in Developing Countries: a Reinterpretation. John Wiley & Sons. 

Thornton, M. (2005). "Skyscrapers and Business Cycles". The Quarterly Journal of Austrian Economics. Vol. 8, No. 1. Ludwig von Mises Institute. pp. 51-74. Todaro, M. & Smith, S.C. (2000) Economic Development. Addison Wesley. 

Weiss, Andrew (2008). "efficiency wages." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan. Accessed online March,1, 2011 [http://www.dictionaryofeconomics.com/article?id=pde2008_E000245] 

Wong, D.F.K. & Li, C.Y. & Song, H.X. (2006). "Rural Migrant Workers in Urban China: Living a Marginalized Life". International Journal of Social Welfare. Vol. 16, No. 1. Wiley. pp. 32-40 

World Urbanization Prospects: The 2009 Revision, Highlights (2009). United Nations Department of Economic and Social Affairs. Online [http://www.un.org/esa/population/unpop.htm] Accessed February 23, 2011.
]]> Was "Confucianism" important to the Economic Development of Japan and South Korea? tag:www.drorism.com,2011:/blog//1.443 2011-01-25T19:25:22Z 2011-01-25T19:35:56Z The rapid growth of the Asian "Tiger" economies gave rise to the idea of an Asian development model, one which consists, perhaps, of a cultural component that is uniquely Asian. Confucianism, an existential and political philosophy that originated in China... Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1 confucianism.jpg

The rapid growth of the Asian "Tiger" economies gave rise to the idea of an Asian development model, one which consists, perhaps, of a cultural component that is uniquely Asian. Confucianism, an existential and political philosophy that originated in China and spread through east and southeast Asia, is often mentioned as one such possible component. More broadly, the interplay between culture and development has fascinated economists and sociologists for generations and is addressed in many of the classics of both disciplines1. As two relatively closed societies and as Asia's only two large-scale economies to attain the status of developed countries, Japan and South Korea offer an interesting case study for the examination of the importance of Confucianism.

]]> In this short essay, we will provide a working definition of Confucianism; locate it within the broader debate concerning a possible Asian Development Model; gauge the influence, if any, of Confucianism on the economic development of Japan and South Korea, and look briefly at other factors that may have been more significant in explaining the economic development of Japan and Korea. It should be stressed that our purpose is not to pin down the role of Confucianism in the development of both countries, but to examine wether Confucianism can be considered a substantive factor, both in terms of its particular influence and in light of other, possibly more significant, aspects. Historically, we will focus on the 19th and 20th - the eve of Japanese and Korean industrialization.

Confucianism draws its name from Confucius, a scholar that lived in eastern China between the 2-4th Centuries BCE. His ideas were elaborated on by his disciples, most notable of which is Mencius, in the centuries following his passing, and were codified and re-oriented from the 8th century onwards, culminating in the work of Zhu Xi in the 11th century (Gardner 1989), at which time they acquired some of the flavor with-which they are mostly associated today. The term itself eschews formal definition, but for the purpose of our inquiry we can summarize it as a "cross between religion, a way of life, system of belief about society, and state ideology" (Rozman 2002: 13) which emphasizes filial piety and the importance of hierarchy and respect for authority in light of maintaining social harmony. In Zhu Xi's Neo-Confucian tradition, "the natural world and man's social world [are] seen as a unity and believed to be governed by the same moral principle..." and thus the natural order is used to "justify existing social norms and institutions" (Hane 1969: 357). More broadly, the term Confucianism is frequently used to describe Chinese culture at large, often incorporating elements which are not part of the Confucian tradition per se. Importantly, Confucianism associates nobility with government service and orthodox scholarship. As such, it does not tend to encourage reformers and "prophets" (Taylor & Arbuckle 1995: 352) and Max Weber famously, and perhaps erroneously, described it as the least conducive of all "World Religions" to capitalist development (Hamilton 1985:70; Dubs 1953).

The idea of a uniquely Asian Development Model gained prominence in the early 1990s, following the rapid growth in the "Tiger" economies of South Korea, Taiwan, Singapore, and Hong Kong, as well as the "Tiger Cub" economies of Indonesia, Malaysia, Thailand, and the Philippines2. Interest in the theory subsided following the Asian crisis of 1997-8 but regained vigor in the mid and late 2000s in line with China's rise to international prominence. Culture, in the context of Asian economic development, may affect development on the micro and macro levels. On a microeconomic level, it has been suggested to serve as a foundation for an Asian model of management and has been used, for example, to explain the way in which Japan benefitted from a "more through exploitation of human resources" than would have been allowed by a purely Western development model (Sugihara 2003:116). On a macro level, the "Asian Way" has been said to sustain a "benevolent, paternalistic form of governance" (Park & Shin 2006: 342).The influence ascribed to culture, however, seems to change in line with economic trends - as Stiglitz points out, some of the unique "cultural aspects, such as Confucian heritage" that were used to explain Asian growth in the early 1990s were earlier "cited as an explanation for why these countries had not grown" (1996: 152). Seeing Confucianism as an important factor in the economic development of Asia has also been promoted by and within countries in the region, most recently with China's rekindling of Confucianism as a unifying cultural heritage and putative aspiration towards a "Harmonious Society" (Zheng & Tok 2007). Some, such as Singapore's autarch Lee Kuan Yew, have argued that the role of Confucianism in Asian development makes local societies incompatible with liberal democracy (in Zakaria 1994). Such usage of Confucianism to justify, ex post facto, an existing political or economic order is not new; the rulers and business leaders of Japan, the region's largest economy, have long been adept at "manipulating the past for present purposes" (Smith 1992: 28). As Wildman Nakai points out, the rising popularity of some aspects of Confucianism in Tokugawa Japan (17-19c) can be attributed to what "it had to offer the ruling stratum in the way of justification of a hierarchical social structure" given its "emphasis on the virtues of loyalty and obedience on the part of the ruled" (1980: 157).

When trying to gauge the importance of Confucianism to understanding the development of Japan, we are faced with a perplexing paradox: The country is the region's first and largest country to attain the status of a developed economy but it is also considered far less 'Confucian' than Korea, China, or Vietnam (Chung 1989:160-161). The fact that Shinto, an assortment of Japanese and east asian traditions, has been Japan's official religion during the early period of industrialization, and that the country's prominent liberal thinkers at the time were opposed to the basic ideas of Confucian ideology (Hane 1969) does not the make the picture any clearer. Hill (1995) lists seven attributes of the Japanese value system that evolved during the Tokugawa period: (1) group identification, often treated as more important than adherence to more "universal" causes; (2) collective responsibility, which nonetheless does not legitimate or condone transgression against society at large; (3) loyalty and filial piety, including ancestor worship and ascribing sanctity to the ruler; (4) reciprocal obligations, including the expectation of top-down "grace" in return for loyalty and effort; (5) harmony, the avoidance of conflict and attempt to reach consensus but also obedience once a decision is made; and (7) the importance of individual performance, mostly judged in light of collective goals (pp. 122). These values and are echoed in modern descriptions of Japanese society and industry, but here too, it is difficult to ascribe them to a specific religion or ideology. They seem to result from a fusion of Confucian, Buddhist, and Shinto religious and ethical beliefs combined with various agrarian traditions (Ibid).

In Korea, Confucianism lost its status as an official state ideology with the fall of the Yi Dynasty (1910) but has retained a "strong indirect influence on... [f]amily relationships, political attitudes, approaches to problem-solving and many other aspects of Korean life" well into the 20th century (Yi and Douglas, 1967: 43 ), and the country is still considered the "paradigmatic Confucian society in East Asia" (Tu in Park & Shin 2006:342). South Korea is often touted as a model for other Asian countries, but its achievements followed more than half a century of Japanese occupation and American patronage which make it difficult to assess the role of endogenous forces. In the 19th century, in fact, "Korean Confucians did not initially respond to modernity as quickly and rationally as their counterparts in Japan", and "fatally slowed down the process of... modernization" (Yao 2000:245). On the microeconomic level, even in the 21st century, some suggest that Confucian influence burdens the Korean economy by restricting the employment of women and discouraging unemployed males from taking up jobs that require manual labor (Kim & Park 2006). An attempt to draw a Confucian link between the successes of big business in Korea and Japan is also somewhat tenuous: Lee et al (2000), to cite one example, point out that key features of Japanese and Korean business are quite different and some of the most so-called Confucian characteristics of Japanese firms - such as lifetime employment and a management that strives towards harmony and consensus - are less prevalent in Korea (Ibid: 634), despite the latter being otherwise more markedly Confucian. Beyond the micro and macro levels, the shadow of the Democratic People's Republic of Korea looms large on the notion that the South's wealth resulted from a heritage it shares with its poor neighbor to the North.

Examining the role of Confucianism does not seem to offer a substantial basis for understanding the development of either country, and, perhaps more importantly, it cannot explain the divergence in attitudes towards development in Korea and Japan: Why, upon exposure to Western military might, did Japan choose to reform and adopt foreign methods and ideas while Korea struggled to follow suite even though - or perhaps because - it faced far greater pressures to do so? A conclusive answer is not available. Moving beyond Confucianism, however, a variety of other theories seem to offer more concrete and transferable lessons. In the case of Japan, scholars stressed the role of political stability in the 250 years preceding industrialization; the high level of commercialization and "market consciousness" that resulted from various policies of the Tokugawa regime; advances in literacy and urbanization prior to opening up; the importance of adopting European practices; the impact of colonization; and the significance of American tutelage. In Korea's case, theories have stressed the impact of Japanese occupation on Korean institutions, agricultural practices, and the organization of industry; the importance of American aid and protection; and Korea's advantage in following into markets opened, and vacated, by the Japanese. In addition, the idea that Confucianism is an important component of Asian growth is undermined by the divergence in development of different Asian countries across historical periods - North and South Korea , 19c Japan and China, and other such combinations - as well as the seemingly loose or negative correlation between development and the degree to which a country is "Confucian" as well as by the difficulty in measuring or defining such a degree.

To sum up, it is clear that existing values and behaviors played an important role in determining the development course in Japan and Korea. Still, it is impossible, based on available data, to pin down the influence of any specific cultural factor, both in its direct effect on either country or as an explanation to the divergence in development between the two countries. The availability of more compelling theories concerning other factors that affected Japanese and Korean development also marginalizes the notion that Confucian heritage can be considered important in explaining Asian economic performance. Any attempt to use Confucianism as a common and important element in the development of Korea and Japan is frustrated by several paradoxes - the failure to explain the divergence in attitude towards foreign methods and industrialization; the divergence in the pace and scope of development once foreign methods were introduced to either country; the difference in so-called "Confucian" aspects of Korea and Japanese industry; and the general difficulty in defining what exactly in these two societies can be considered "Confucian", what should be attributed to other cultural and religious influences, and what is simply a consequence of more mundane economic and political forces. More broadly, the disparity in economic performance amongst other Asian economies also suggests that beyond a common cultural heritage, a variety of other factors probably played a more important role in determining the development path of countries in the region.

Finally, the fact that Confucian heritage has been systematically used to justify limitations on individual freedoms - from Tokugawa Japan, through Lee Kuan Yew's Singapore, and through to 21st Century China - triggers an instinctive suspicion of any emphasis of its importance. That said, it is clear that the existing literature on the subject leaves a lot to be desired, and perhaps the significance of Confucian heritage in explaining Korean and Japanese development will come into sharper relief in future research. Until then, we are left with a nagging feeling that we are, perhaps like the Shoguns of old, trying too hard to impose an ideal mold from the past on a fragmented and complex present.

Amsden, A. (1989) Asia's Next Giant: South Korea and Late Industrialization. New York: Oxford University Press.

Arbuckle, Gary & Taylor, Rodney (1995). "Confucianism". The Journal of Asian Studies. Vol. 54, No. 2. Association for Asian Studies. pp. 347-354.

Chung, Young-iob. (1989). The Impact of Chinese Culture on Koreaʼs Economic Development. Confucianism and Economic Development: An Economic Alternative?. Washington, D.C.: The Washington Institute for Values in Public Policy. pp. 147-161.

Clark, Gregory (2007). A farewell to alms: a brief economic history of the world. New Jersey: Princeton University Press.

Dixit, Avinash (2007). "Evaluating Recipes for Development Success". World Bank Research Observer. Vol. 22, No. 2. pp. 131-157.

Dubs, Homer H. (1953). "Review: The Religion of China, Confucianism and Taoism by Max Weber". Philosophy. Vol. 28, No. 105 (Apr., 1953). Cambridge University Press. pp. 187-189

Gardner, Daniel K. (1989) "Transmitting The Way: Chu Hsi and His Program of Learning". Harvard Journal of Asiatic Studies. Vol. 49, No. 1. MA, USA: Harvard-Yenching Institute. pp. 141-172

Hamilton, Gary G. (1985) "The Protestant Ethic Theory of No Capitalism" in Buss, Andress E. (Ed.) Max Weber in Asian Studies. Brill Academic Publication. pp. 65- 89.

Hane, Mikiso (1969). "Early Meiji Liberalism. An Assessment." Monumenta Nipponica. Vol 24, No. 4. Sophia University. pp. 353-371.

Hill, Charles W. L. (1995). "National Institutional Structures, Transaction Cost Economizing and Competitive Advantage: The Case of Japan". Organization Science. Vol 6., No. 1. INFORMS. pp. 119-131.

Kim, Andrew Eungi & Park, Innwon (2006). "Changing Trends of Work in South Korea: The Rapid Growth of Underemployment and Job Insecurity". Asian Survey. Vol 46, No. 3. University of California Press. pp. 437-456.

Koike, K. (1984), "Skill Formation Systems: Japan and the U.S.," in M. Aoki (ed.) The Economic Analysis of the Japanese Firm. Amsterdam, The Netherlands: North-Holland

Krugman (1994) 'The Myth of Asia's Miracle', Foreign Affairs 73, 6, 1994

Lee, Jangho & Roehl, Thomas W. & Choe, Sunkyoo (2000). "What Makes Management Style Similar and Distinct across Borders? Growth, Experience and Culture in Korean and Japanese Firms". Journal of International Business Studies. Vol. 31, No. 4. Palgrave Macmillan Journals. pp. 631-652

Nakamura, James I. (1981). Human Capital Accumulation in Premodern Rural Japan. The Journal of Economic History. 41 (2). pp. 263-281.

Park, Chong-Min & Shin, Doh Chull (2006). "Do Asian Values Deter Popular Support for Democracy in South Korea?". Asian Survey. Vol. 46, No. 3. CA, USA: University of California Press. pp. 341-361.

Rozman, Gilbert. "Can Confucianism Survive in an Age of Universalism and Globalization?". Pacific Affairs. Vol. 75, No. 1. BC, CA: University of British Columbia. pp. 11-37

Smith, Robert J., (1992) "The Cultural context of the Japanese political economy" from Kumon, Shunpei & Rosovsky, Henry, The Political economy of Japan, vol. 3, Cultural and social dynamics. Stanford, CA: Stanford University Press. pp.13-31.

Stiglitz, Joseph E. (1996) "Some Lessons from the East Asian Miracle". The World Bank Research Observer. Vol 11, No. 2. pp. 151-177

Sugihara, K. (2003) 'The East Asian Path of Economic Development: a Long Term Perspective', in G. Arrighi, T. Hamashita & M. Selden (eds.), The Resurgence of East Asia

Tu, Wei-ming, ed. (1966), Confucian Traditions in East Asian Modernity. Cambridge, Mass.: Harvard University Press.

Wade, Robert (1990) Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization. Princeton, NJ: Princeton University Press

Wildman Nakai, Kate (1980). "The Naturalization of Confucianism in Tokugawa Japan: The Problem of Sinocentrism". Harvard Journal of Asian Studies. Vol 40, No. 1. Cambridge, MA: Harvard-Yenching Institute. pp. 157-199

World Bank (1991) The East Asian Miracle. Washington, DC: World Development Report

Yao, Xinzhong (2000). An Introduction to Confucianism. NY, USA: Cambridge University Press.

Yi, Myonggu & Douglas, William A. (1967) "Korean Confucianism Today". Pacific Affairs. Vol. 40, No. 1/2. BC, Canada: University of British Columbia. pp. 43-59.

Zakaria, Fareed (1994). "Culture is Destiny: A Conversation with Lee Kuan Yew". Foreign Affairs. Vol. 73, No. 2. pp. 109-126.

Zheng, Yongnian & Tok, Sow Keat (2007). "'Harmonious Society' and 'Harmonious World': China's Policy Discourse Unider Hu Jintao". University of Nottingham China Policy Institute Briefing Series. Issue 26. Nottingham, UK.

]]> 19th Century Origins of Japanese and Korean Development tag:www.drorism.com,2010:/blog//1.439 2010-12-21T08:37:38Z 2010-12-21T09:01:45Z Japan and Korea are among a "handful of successes among the world's more than one hundred developing countries" (Kuznets 1994:1) and as such offer a successful development model to emerging economies in Asia and beyond. While both countries completed the... Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1 4372760914_63fab6dbfe_m.jpegJapan and Korea are among a "handful of successes among the world's more than one hundred developing countries" (Kuznets 1994:1) and as such offer a successful development model to emerging economies in Asia and beyond. While both countries completed the transition to a fully-developed economy in the 20th century, it is worthwhile to examine the historical foundations of this transition. By surveying the 19th century roots of Korean and Japanese development, we can draw conclusions that may benefit the 21st century modernization efforts of other countries, most notably China. 

It is beyond the scope of this short essay to address the myriad factors that may have influenced industrialization and further economic growth in these two countries. My aim is to provide an overview of, and perspective on, some of the recurring themes in the relevant literature, namely the role of political stability; advances in agriculture; urbanization and proto-industrialization; formation of human and physical capital; and the impact of institutional change.

]]>
The Japanese case will feature more prominently in the following pages. This is due to relative availability of data and the fact that Japan offers a somewhat uninterrupted narrative linking the economic and social structures of late 19th century with those of 20th century. Furthermore, the various factors of Japanese development provide, up to a point, a framework within which Koreaʼs progress can be evaluated. 

While I focus on the economy in the late 19th century, I have tried to emphasize those elements that developed gradually prior to that period as these provide a better basis for comparison between the two countries, and may explain the differences in the way either country responded to the introduction of foreign trade and Western ideas on government and economic organization. In addition, Korea, unlike Japan, did not initiate a formal process of modernization until the very last years of the nineteenth century, and these efforts were hampered significantly by geopolitical developments until well into the second half of the twentieth century. And so, those elements in society and the economy on the eve of early modernization may hint at what Korea may have (or have not) achieved in an alternative, uninterrupted, future. 

Both Japan and Korea entered the 19th century as uniquely closed countries, almost completely reluctant to engage in foreign trade other than with each other and China (Tipton 1998: 59; Gordon 2003:19). The Tokugawa regime brought a long period of "unprecedented peace to the Japanese islands" (Gordon, 2003: 19) which resulted in "great prosperity, industrial development, and domestic trade" (Carpenter 1960:159). During the preceding centuries, Korea also enjoyed a long period of relative political stability. The longevity of Korean dynasties may be due to the protectorate status that Korea enjoyed under the Chinese emperors, although Korean dynasties usually survived while their "protecting" Chinese dynasties changed (Palais 1995: 422). While the political stability of both countries is not an economic feature per se, it provided the foundation to social and economic developments. 

Furthermore, external pressures were important triggers of political change in both countries during the second half of the 19th century. In fact, it may be argued that the rise of Japanese militarism in the end of the nineteenth century contributed directly to the countryʼs industrialization and the development of key industries (Samuels 1996: 83-88), and this development in turn affected the development of Korea. And so, in an ironic twist of the Roman adage, Japan became prepared for war for by pursuing peace and Korea had to let go of peace by not being prepared enough for war. 

An interesting development during the Tokugawa period was the introduction of the alternate residence system. This arrangement required local officials (Daimios) to spend one year out of two in the capital (Edo), as well as to leave their wives and children in the capital. This system had "the effect of further monetizing and commercializing the economy" (1998: 62), by providing a cultural link between rural leaders and the city; burdening rural officials (and their local economies) with sustaining a life style based on the cost of living in the capital; and necessitating the emergence of more efficient medium of exchange to facilitate trade between urban and rural regions (Nakamura 1981: 271). 

The overall result was an increase of what Nakamura calls "market consciousness" among Japanese farmers (p. 267) - a growing awareness of demand for produce and services beyond those required by the local landlord and beyond the agricultural sector. Some argue that during this time the Japanese work ethic emerged, thus making Japanese labor more suitable for later industrial work. Relying on accounts of foreign visitors, Alam points out that it seems, at least, that the notion that the Japanese are "industrious, efficient, and, disciplined, people is not a new one" (Alam 1987:242). 

Gauging the importance (and existence) of a Korean work ethic is more tricky. Chung brings several accounts of foreigners, including Westerners, who visited pre-modern Korea and describe a "somewhat listless and perfunctory" workforce. Korean agriculture was described as "ʻwasteful and untidyʼ and conducted in a careless and haphazard fashion". The description of Korean farms is especially telling, as it draws a comparison with the "exquisite neatness of Japanese and Chinese husbandry" (2006: 17-18). This difference in attitude, if it indeed existed, may imply that while Korean did not lack an ability to do better, they simply had no incentive to do so within the existing political and economic structure. 

In time, perhaps as a result of the alternate residence system and advances in agriculture, "a host of... industries developed throughout the [Japanese] countryside, including the production of sake... miso, soy sauce, cotton, and rougher fabrics" (Gordon 2003:30). In one example, Green describes a small town that "tripled in size from 1757 to 1855 as it came to specialize in weaving". In line with indigenous growth of non-agricultural enterprise in rural areas, many city entrepreneurs started to move their production facilities "to the countryside to escape the restrictions of urban economic life (e.g. guilds) and to take advantage of the available labour time of farm households" (Francks 1999: 51). 

As a result, more and more rural households, especially in the areas surrounding the big cities, "came to derive significant portions of their income and employment from non-agricultural sources" (p.51). This process of proto-industrialization, comprised of "an increased scale of operations and specialized production networks serving long-range markets" (Gordon 2003: 30), set the scene and prepared the population for more complex trade system in the following decades. It also contributed to the integration of urban and rural areas, and as Reischauer points out, while Japan was an "outwardly feudal land" in 1800, it was "almost as urbanized as were the leading industrial countries in the West at that time" (in Carpenter p. 160). In Korea, the integration of rural and urban areas was more limited, and even during the last years of the 19th century, major developments "did not radiate widely from open ports to [other] urban areas and then to the provinces" (Chung 2006: 87). 

The process of proto-industrialization grew inline with advances in the agricultural sector. In both Korea and Japan, resources for investment - both human and physical - from the agricultural sector were mobilized for the development of the manufacturing sector (Francks 1999:10). However, in Korea, this occurred mostly in the 20th century. Further, Japan underwent a "Green Revolution" in the last quarter of the 19th century, introducing new agricultural techniques, fertilizers, and high-yielding seed varieties (p.30). Some of these innovations were ported from Japan to Korea, but here too only in the 20th century. 

Advances in agriculture not only lead to accumulation of capital but also contributed to the general development and integration of markets (Tipton 1998:ch.3). This, in turn, affects the way in which individuals interact with each other. As Clark points out (2007: 262), "by 1800 Japan was the closest of the Asian economies to England in terms of social characteristics". A significant increase in village schools occurred during the 19th century, with thousand of them popping up across the country (Nakamura in Clark 2007: 263). As a result, "Literacy rate for men estimated at 40-50 percent by the time of the Meiji Restoration of 1868, and a rate for women of 13-17% percent" (Passin in Clark 2007: 263). In Korea, male literacy in seventeenth century Korea was "probably high by premodern standards, and most likely increased in the eighteenth and nineteenth centuries" (Seth 2006: 134). Still, while not much data is available about Korean literacy rates at the end of the 19th century, later records from the early period of the Japanese occupation (1910 and onwards) imply a significantly lower number of schools and overall literacy levels in Korea (Chung 2006: 114). 

The importance of human capital as a factor (as well as a product) of economic growth has been widely acknowledged, most notably in Gary Beckerʼs work (1993) on the subject. Becker describes human capital as a personʼs "knowledge, skills, health, or values". While discussing the relation between economic development and social values, it is worthwhile to examine the of Confucian traditions in both countries. 

Confucianism influenced many aspects of Japanese society, including moral code of the Samurai class (Tai 1989: 75). However, due to the diversity of its influence and the subsequent development outcomes (in places such as China, Korea, Vietnam, Singapore, Hong Kong, and Japan) it cannot be considered a substantive factor. In addition, as Fogel points out (1996: 430-434), while "Confucianism enjoyed a significant rejuvenation" during the Tokugawa era, "Korea, China, and Vietnam were far more profoundly ʻConfucianʼ social orders than Japan". Indeed, Chung points out that "Koreans were perhaps even more steeped" in Confucian traditions than the Chinese themselves. He asserts that this adversely affected Koreaʼs economic growth by discouraging economic aspiration, de- emphasising the importance of innovation and entrepreneurship, undervaluing work (as opposed to learning for the sake of learning), and served as a disincentive for capital formation (1989:160-161). 

The variety of social and economic developments in, and relative achievements of, Korea and Japan up to the middle of the 19th century set the scene for the institutional changes that took place in the following decades. The Tokugawa rule ended through a series of events culminating in the Meiji Restoration of 1968. At that time, a new system of government was established, with a mandate to open up the country and adopt (within limits) a variety of Western political and economic ideas. While the Restoration signals the birth of modern Japan, it is important to emphasize that by that time the country was already "highly commercialized" and was - to a considerable extent - ripe with entrepreneurship (Cullen 2003: 210). 

Apart from advances in agriculture during this period, described above, development was also driven by increased military expenditure. As Samuels points out, "[d]irect military procurement was an early and critical stimulus (to the Japanese economy)", and military spending accounted for more than half of government investment from 1877 until the end of the 19th century and beyond. Military demand, in turn, provided a "key stimulus for the rest of the economy" (1996: 85). Many of the leading Japanese industrial conglomerates emerged during this period, consolidating a variety of strategic industries and setting the stage for Japanʼs growth up to the middle of the 20th century. The list of companies that were established or came to the fore during this period in many of Japanʼs largest companies to this very day - Mistubishi, Mitsui, Toshiba, Nikon, and Kawasaki, to name a few (pp.85-88). 

Korea also began a process of "opening the country to the outside world" (Chung 2006: 41) from 1876 onwards,. Many important processes were initiated during this period, encompassing within them the sprouts of future development. However, Koreaʼs efforts were cut short less than 30 years later once it became a protectorate, and later a colony, of Japan.

While there were no consistent government policies during the period of transition, the general direction was towards general acceptance of Western ideas regarding economic and order (pp.57-58). A variety of machine-made foreign products were introduced to the Korean market during this period and aggregate imports grew faster than GDP, starting from 70,000 yen in 1875 to 20 million yen by 1904 (p. 45). Most imports came from Japan. Concurrently, Korea saw a growth in Foreign Direct Investment (pp. 50-52) and increase in the availability foreign loans (p. 55). 

Overall, the opening of the country brought a "different outlook on life, technology, infrastructure, production, business, and consumption" and provided Koreans with a powerful demonstration of the benefits of modernization (p. 56). Still, Koreaʼs initial response to this new outlook was "overwhelmingly negative, especially toward the Japanese", but they were nonetheless gradually accepted (p.81). The end result was that by 1904 very limited real GDP growth - roughly 10% in 30 years - has been achieved, and the Korean economy still relied heavily on agriculture with an "infantile" manufacturing sector (p.81).

As we have seen above, an examination of late 19th century Japan and Korea brings to the fore a variety of social and economic factors that may be considered conducive to economic growth. These factors, in turn, affected political changes in both countries during the end of the 19th century, and affected the geopolitical balance between them. 

Among the various factors, the most significant ones seem to be the formation of human capital; the relatively high level of commercial activity and existence of markets prior to formal industrialization; and advances in agriculture. The advances in these three factors were relatively unique to both countries (vis-a-vis other Asian countries) and also reflect, if not explain, the differences between their development trajectories. Another important feature in 19th century Japan was the emergence of a new political system, one that promotes the absorption of foreign methods and techniques, and promotes a variety of strategic industries. The Korean attempt to follow in Japanʼs footsteps during the last years of the 19th century seems to have been half-hearted, and in any case it was cut short by the Japanese occupation. 

Sources & Bibliography 

Alam, M. Shahid. (1987). Some European Perceptions of Japanʼs Work-Ethos in the Tokugawa Era: A Limited Survey of Observations from the Westʼs First Encounters offers Parallels to Todayʼs. American Journal of Economics and Sociology. 46 (2). pp. 229-243. 

Becker, Gary S. (1993). Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education. Chicago and London: The University of Chicago Press. 

Carpenter,  David (1960). Urbanization and Social Change in Japan. The Sociological Quarterly. 1 (3). pp. 155-166. 

Chung, Young-iob. (1989). The Impact of Chinese Culture on Koreaʼs Economic Development. Confucianism and Economic Development: An Economic Alternative?. Washington, D.C.: The Washington Institute for Values in Public Policy. pp. 147-161. Chung, 

Young-iob. (2006). Korea under siege, 1876-1945 Capital formation and economic transformation. New York: Oxford University Press. 

Clark, Gregory (2007). A farewell to alms: a brief economic history of the world. New Jersey: Princeton University Press. 

Cullen, L.M. (2003). A History of Japan, 1582-1941: Internal and External Worlds. Cambridge: Cambridge University Press. 

Francks, Penelope. (1992). Japanese Economic Development: Theory and Practice. London: Routledge. 

Francks, Penelope. (1999). Agriculture and Economic Development in East Asia. London: Routledge. 

Francks, Penelope. (2002). Rural Industry, Growth Linkages, and Economic Development in Nineteenth-Century Japan. The Journal of Asian Studies. 61 (1). pp. 33-55.

 Fogel, Joshua A. (1996). Issues in the Evolution of Modern China in East Asian Comparative Perspective. The History Teacher. 29 (4). pp. 425-448. 

Gordon, Andrew (2003). A Modern History of Japan: From Tokugawa Times to the Present. New York: Oxford University Press. 

Howell, David L. (1992). Proto-Industrial Origins of Japanese Capitalism. The Journal of Asian Studies. 51 (2). pp. 269-286. 

Kuznets, K. (1977). Economic growth and structure in the Republic of Korea. New Haven, Connecticut: Yale University Press. 

Kuznets, Paul W. (1994). Korean Economic Development: An Interpretive Model. Westport, Connecticut: Praeger. 

Nakamura, James I. (1981). Human Capital Accumulation in Premodern Rural Japan. The Journal of Economic History. 41 (2). pp. 263-281. Palais, James B. (1995) A Search for Korean Uniqueness. Harvard Journal of Asiatic Studies. 55 (2). pp. 409-425. 

Pomeranz, Kenneth. (2001). Is There an East Asian Development Path? Long-Term Comparisons, Constraints and Continuities. Journal of the Economic and Social History of the Orient. 44 (3) pp.322-362. 

Samuels, Richard J. (1996). Rich Nation, Strong Army: National Security and the Technological Transformation of Japan. New York: Cornell University Press. 

Tai, Kuo-hui. (1989). Confucianism and Japanese Modernization: A Study of Shibusawa Eiichi. Confucianism and Economic Development: An Economic Alternative?. Washington, D.C.: The Washington Institute for Values in Public Policy. pp. 70-91. 

Tipton, Frank B. (1998). The Rise of Asia. London: Macmillan Press. 

Yamauchi, Futoshi and Godo Yoshihisa (2004). Human Capital Accumulation, Technological Change and International Spillovers: Comparative Growth Experience from Japan, Korea and the United States. FASID Discussion Paper Series on International Development Strategies. No. 2004-05-01. Japan: Foundation for Advanced Studies on International Development. 

Seth, Michael J. (2006). A Concise History of Korea: from the neolithic period through the nineteenth century. Maryland: Rowman & Littlefield.
]]> Sympathy for the Devil: A Short Note on Wikileaks, Terrorism, and the State of Liberalism tag:www.drorism.com,2010:/blog//1.438 2010-12-09T11:36:14Z 2010-12-09T14:49:48Z Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1 I have been living in London for two months now. Over the past week, two interesting things happened here. First, Muamar Qadaffi, an autocratic ruler, and a man whose messengers were convicted in court for killing British civilians, was welcome (via satellite) as a guest speaker at the London School of Economics, where the moderator referred to him as "the brother leader". The university, to be clear, is partly funded by the British tax payer. 

A few days later, Julian Assange was arrested due to allegations of "sexual crimes", later found out to be alleged misconduct under an exotic Swedish law that prohibits condom-less sex. Such allegations don't normally get a person on the Interpol's "most wanted" list and trigger an arrest in a foreign country. Clearly, the arrest was driven by pressure from various governments and interested parties.

]]>
I was happy to take part in the discussion with Qadaffi (while cringing at the way in which he was introduced). I don't, however, understand the justification for arresting Mr. Assange, who facilitated (and perhaps, encouraged) the publication of leaked military and diplomatic documents. Unlike the various officers and bureaucrats who made the information available to Mr. Assange, willingly or through negligence, the man himself - to my knowledge - has done nothing more than make the information publicly available, and possibly encourage others to do the same. 

Would not a traditional newspaper do the same, if exposed to this type of data? Luckily, this is not a hypothetical question: a variety of major newspapers did publish a lot of the data that was provided to them by Assange.

Is this what Liberalism boils down to? Nurturing our enemies in the name of political correctness and "free speech" and arbitrarily arresting those among us who facilitate the exposure of a variety of lies and power-deals between the governments and corporations that strive to manage our lives? 

]]> Hayek in a Nutshell. tag:www.drorism.com,2010:/blog//1.434 2010-11-18T17:23:18Z 2010-11-18T17:33:56Z "The central concept of liberalism is that under the enforcement of universal rules of just conduct, protecting a recognizable private domain of individuals, a spontaneous order of human activities of much greater complexity will form itself than could ever be... Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1 "The central concept of liberalism is that under the enforcement of universal rules of just conduct, protecting a recognizable private domain of individuals, a spontaneous order of human activities of much greater complexity will form itself than could ever be produced by deliberate arrangement, and that in consequence the coercive activities of government should be limited to the enforcement of such rules, whatever other services government may at the same time render by administering those particular resources which have been placed at its disposal for those purposes"Friedrich A. Hayek, Studies in Philosophy, Politics, and Economics, 1969. Apart from being one of the longest sentences ever, the above encapsulates Hayek's key ideas about society, politics, and economic planning. I will follow up with a proper explanation when I have a free moment (Sorry for all the quotes this week!). ]]> Is Capitalism all about Greed? tag:www.drorism.com,2010:/blog//1.432 2010-11-15T09:25:30Z 2010-11-15T22:13:20Z "The impulse of acquisition, pursuit of gain, of money, of the greatest possible amount of money, has in itself nothing to do with capitalism. This impulse exists and has existed among waiters, physicians, coachmen, artists, prostitutes, and beggars. One may... Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1 "The impulse of acquisition, pursuit of gain, of money, of the greatest possible amount of money, has in itself nothing to do with capitalism. This impulse exists and has existed among waiters, physicians, coachmen, artists, prostitutes, and beggars. One may say that it has been common to all sorts and conditions of men at all times and in all countries of the earth, wherever the objective possibility of it is or has been given... Unlimited greed for gain is not the least identical with capitalism, and is still less its spirit. Capitalism may even be identical with restraint, or at least a rational tempering, of this irrational impulse."

Max Weber, Author's Introduction to The Protestant Work Ethic and the Spirit of Capitalism.
]]> Uncertainty and Growth: What (else) is Wrong with America tag:www.drorism.com,2010:/blog//1.429 2010-09-26T08:00:31Z 2010-10-27T07:49:07Z "The importance which the certainty of law has for the smooth and efficient running of a free society can hardly be exaggerated. There is probably no single factor which has contributed more to the prosperity of the West than the... Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1 "The importance which the certainty of law has for the smooth and efficient running of a free society can hardly be exaggerated. There is probably no single factor which has contributed more to the prosperity of the West than the relative certainty of law which has prevailed here."
Two years into the crisis, the US finds itself with fewer jobs, slower growth, and a higher unemployment rate than expected in the government's worse case scenarios. The current debate concerning America's troubles is focused mainly on monetary and fiscal policy: more or less stimulus, higher or lower taxes, and the expansion or contraction of government programs. 

While the source of America's pain is in monetary and fiscal policy (artificially low interest rates, wars, programs to encourage sub-standard home loans), one of the keys to its recovery lies in a different field: The law.

]]>
As noted in the quote above, taken from Hayek's 1960 title Constitution of Liberty, the lack of a clear legal framework and the arbitrary decisions by government make it difficult for business and individuals to make plans for the future.  Making an investment requires a certain level of trust, even faith, in the future. Peter Sztompka, in one of the most important works on this topic, points out that "to show trust is to anticipate the future. It is to behave as though the future were certain". And of course, Trust always "refers to the actions of others" - whether it is other individuals, business, or government organizations.

Responding to the current crisis, the US government, under both Bush and Obama, took a variety of arbitrary actions that increased uncertainty and damaged the delicate fabric of trust within the economy. A few examples off the top of my head:

1. Lehman Brothers was allowed to go bankrupt, while other "too big to fail" financial institutions were rescued both before (LTCM, Bear Stearns) and after (AIG, Fannie, Freddie, et al);

2. Companies from certain industries - for example, General Motors - were nationalized and "rescued", while others were left to their own devices; and even

3. Oil giant BP was forced by the US government to deposit $20 billion in a future "Claims Fund" as a punishment for the massive oil spill at "Deepwater Horizon".

Note that the issue here is not with the actions themselves, but with their arbitrary nature - the fact that they are not based on any pre-defined law or principle. It is also not a matter of left or right - I am not saying that Obama should have done this or Bush should have done that - only that both of them should have done things within clear and pre-defined boundaries. When the government bails out one bank and lets another go bust, the public is unsure as to how the government will behave in the future. When the government "punishes" a large company without going through the standard legal proceedings, the public is unsure as to how the government will behave in the future, and the rule of law is being undermined. 

The examples above are also fine case studies in unintended consequences. In all three instances the government wanted to calm the public and prevent chaos and uncertainty. In all three cases the outcome was exactly the opposite.  The policy itself matters less than the manner in which it is executed. As the British historian and jurist F.W. Maitland pointed out more than 100 years ago: "Known general laws, however bad, interfere less with freedom than decisions on no previously known rule". 

Investors and entrepreneurs can flourish even within the most rigid system but only as long as they get all the "bad news" in advance and can plan accordingly. So, if - as some of his critics claim - Obama is a communist, that's fine, as long as he tells us in advance and adapts America's legal system accordingly. Who knows, once he does that, perhaps Americans will enjoy GDP growth of 10% per annum, just like their "comrades" in the People's Republic of China. 
]]> Israeli Society in Five Sentences or Less tag:www.drorism.com,2010:/blog//1.407 2010-04-18T15:02:31Z 2011-12-04T02:23:55Z Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1 119187902_b3c26f6de7.jpegTomorrow evening, Israel will celebrate its 62nd birthday. In honor of the occasion, we set to explore five Israeli figures of speech that encapsulate the country's character -- a unique mix of good humor, grief, paranoia, and almost nonsensical optimism. 

]]>
Israel's existence is full of contradictions: the world's only Jewish state nestled between dozens of Muslim countries; the region's only Western-style democracy situated on the border between Asia and Africa's land-masses; the official home of a single nation - made of immigrants from across the globe - mixed with several other non-Jewish minorities; a world-leader in scientific research and private entrepreneurship combined with a Middle-eastern attitude of "no worries" and cutting corners; a safe haven for Jewish refugees which is itself constantly under attack (and often on the offensive as well); etc. etc.

One of the ways in which Israeli society copes with these contradictions is through creative use of language: Israelis maintain their sanity by addressing controversial or painful issues with delicate, nuanced expressions which often mean exactly the opposite of what they seem to say. Below are a few of our favorites: 

1. "The patient is joking with his doctors" [Hebrew: מתלוצץ עם רופאיו]: Commonly used in electronic media reports to describe the medical condition of wounded soldiers or high-level government officials. This short sentence includes several key features: the image of the ideal Israeli warrior, always cool and in good spirits; the image of the Israeli doctor, who, under stressful conditions, is in control of the situation and can afford to exchange jokes with his patients; and, most importantly, the idea of delivering a short message about matters of life and death that leaves the listener without any idea of the actual state of affairs. After all, the report could have provided specific information about the said medical condition, but instead it only refers to the general mood and draws on popular imagery. 

The most famous example of this expression comes from the sad story of Ariel Sharon, one of Israel's most admired military and political leaders. Sharon, then Prime Minister of Israel, suffered a series of strokes between December 2005 January 2006. The media reported that Sharon, the ultimate Israeli hero, is "joking with his doctors". He has been in a coma ever since. 

2. "The families were notified" [Hebrew: הודעה נמסרה למשפחות]: Used in electronic media reports of military casualties, often coupled with an ambiguous description of the severity of the situation. The sentence combines two characteristics of Israeli life.

First is the local media's inability to report deaths of military men before getting official approval. And so, the ambiguous description, using the word "hurt" (נפגעים) instead of the more specific "wounded" (פצועים) usually means that some or all of the soldiers involved are in fact dead. This is due to the noble Israeli procedure of notifying the families of casualties in person by paying them a visit. The person delivering the news is usually the soldier's commanding officer or a common friend. Until such notice is delivered, the media is not allowed to report the death, lest the family hears about it indirectly.

Second, and more interesting, is that in a country as small as Israel, at any given moment, practically each and every person has a relative, close friend, or neighbor in active military service. And so, it is critical for the report to mention that "the families were notified". The actual news value in this is not that the families of the dead soldiers were notified, but the fact that your family was not notified: If you did not hear anything by now, it means your loved ones are safe. 

3. "No special incidents were recorded" [Hebrew: לא נרשמו אירועים חריגים]: Commonly used in news reports about large public events. In a country surrounded by enemies and populated with sometimes hostile political and religious groups, the probability of a public event becoming a mass-casualty event is relatively high. And so, while "overheated" events are a fact of life, the public interest is aroused when events simply go peacefully and according to plan. In Israel's intense environment, the fact that nothing happened is important news. 

A common example: "3,000 Muslim attended Ramadan prayers in Jerusalem's Temple Mount. No special incidents were recorded."

4. "Here are the news, by order of importance..." [Hebrew: הרי החדשות ועיקרן תחילה]: Israel is probably the only country on earth where radio stations include news reports in regular intervals of 60 minutes, 24 hours a day, often with breaking news updates every 30 minutes. In order to remain calm, the Israeli public needs to be constantly reassured that "no special events were recorded" and if any were recorded, then at least "the families were already notified" and we can all go back to our business. 

In a country where news reports are so frequent, it is important to manage one's time efficiently in order to live a little between all the dramatic events. And so, while many listen to the news almost every hour, they only listen to the first few seconds. In many countries news items are delivered by order of importance, but in Israel this is an "iron rule" and the announcer reassures his listeners at the beginning of each report that they are not missing out on any dramatic announcement if they stop listening after a few seconds. 

The sentence exemplifies a key feature of Israeli civil society: If no one was killed, then the rest of the news is not important. And so, social, cultural, environmental and all other news items receive relatively limited public attention. 

5. "I wished the soldier good luck" [Hebrew: איחלתי לחייל בהצלחה ]: A greeting used in protocols of military meetings between an individual soldier and a commanding officer. Unlike all the expressions we looked at so far, this one is not used anywhere other than in such protocols.

This expression is amusing as it encapsulates the dogmatism and opacity of the Israeli (and any) army, and the absurdity of many of the interactions between Israeli civilians in compulsory military service and professional officers who chose to build a career in the army: The greeting is standard and is always used to summarize such meetings, even if the officer did not wish the soldier good luck. In fact, even if the soldier was demoted, transfered, or sentenced to solitary confinement, the official summary will always state that the commander "wished him good luck".

***

This was a short overview of Israeli society in five sentences. Happy Independence Day and I wish the soldier good luck! 

*

(The above photograph, by the way, was taken on a tourist promenade in Tel Aviv, Israel's largest city, showing two female Jewish soldiers relaxing without their shoes on, an old muslim man looking at the Mediterranean Sea, and the historical port city of Jaffa in the background, complete with cranes - busy with construction of high-end apartment towers)
]]> Iceland's Volcanic Cloud: Europe's Black Swan? tag:www.drorism.com,2010:/blog//1.406 2010-04-17T22:28:45Z 2011-11-24T00:07:46Z Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1 dpertures.pngA specter is haunting Europe -- the specter of bankruptcy. Just when we thought that things in the old continent are as bad as it gets, it looks like they are about to get much worse. A few weeks ago, Greece practically defaulted on its debt; Several other European countries, including England, seemed to be heading in the same direction; and global investors were already losing faith in Europe's ability to recover. And now, a highly improbable event is threatening to exacerbate the situation.

An Icelandic volcano erupted on April 15, creating a black cloud that threw Europe's airline industry into chaos: Two thirds of all flights have been canceled over the past weekend, and Europe's largest airline, Lufthansa, cancelled all of its flights. The movement of people and goods in and out of the continent is severely hampered, bringing many industries to a virtual halt. The eruption is far from over, and experts are still unable to predict the end of it. The volcano's last eruption, in 1821, lasted for two years.(!)

]]>
There is a bitter-sweet irony in the fact that Iceland, the first European country to go bankrupt during the current financial crisis, is also the source of Europe's latest trouble; a second warning to those who failed to listen to the first one. European governments spent themselves into massive debt and hoped that somehow it will all work out in the end. Looks like they miscalculated the odds. A black cloud is hovering above the old continent, and it's made of much more than volcanic ash.

The bright side is that this singular event might throw Europe's troubles into a sharp relief and convince the locals that the time has come to change their ways. And when I say change I am not talking about Obama posters and empty slogans but about individuals taking responsibility for their own lives, saving what they earn, and investing it wisely. I am talking about governments slashing expenditures, minimizing entitlements, and going through a painful - but therapeutic - period of de-leveraging across the board. After all, a few clouds are a much gentler wake up call than a war or another type mass-casualty event. And so, Europeans can count themselves lucky, but not for much longer. 
]]> America's Debt is not China's Fault tag:www.drorism.com,2010:/blog//1.398 2010-03-21T03:20:19Z 2010-03-21T08:15:26Z The American media is in combative mood: A year and a half after Lehman's collapse, the pundits are finally waking up to the fact that China bears a significant share of the blame for the current financial crisis. And so,... Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1 Friendly Advice.jpegThe American media is in combative mood: A year and a half after Lehman's collapse, the pundits are finally waking up to the fact that China bears a significant share of the blame for the current financial crisis. And so, the Krugmans of this world are calling for the US government to 'punish' China through a variety of protectionist measures. 

I have been writing about China's role in creating the current crisis for a long time. And still, I think it is wrong to blame China for America's pains - namely, a collapsing credit bubble, rising unemployment, and a ballooning government debt. 

Yes, the Chinese are manipulating their currency. By doing so, they make it easier for Americans to buy Chinese goods for less and make it harder for Chinese citizens to increase their purchasing power. They are also making it more difficult for Chinese companies to move up in the global supply chain and produce better, more innovative products for higher prices. China's currency manipulation, on its own, damages no one other than the Chinese people. 

]]> So how come America is in pain? Well, as noted above, China's currency manipulation encourages Americans to buy Chinese goods. The Chinese use a large share of the US Dollars they receive from such sales to buy US Treasury Bills. By doing so, they are practically sending Dollars back to America and making it easier for the US Government to run large deficits and for the US Federal Reserve to maintain low interest rates. These low interest rates, in turn, make it easier for American consumers to keep buying Chinese goods. They also make it easier for American consumers to borrow money for new apartments and speculative investments. The end result is a bubble in the stock and housing markets and a soaring national debt. 

So, does this mean that China is to blame for the global financial crisis and for America's debt? Not exactly. China's actions facilitated the creation of a credit bubble in the US: China's purchase of US Treasury Bills makes it easier for the US Government to increase its deficits, and China's sales of artificially-low-priced goods tempers the rise in US consumer prices. This means that the US Government could spend billions on wars in Iraq and Afghanistan as well as on other government programs, without a significant rise in taxes or the price of goods ("inflation"). At the same time, China's government benefited from the American "boom" by avoiding rapid changes in the structure of its labor market and maintaining social stability.  

In essence, China was (and still is) "exporting" unemployment in exchange for "importing" inflation. At the same time, the US is "exporting" inflation and importing "unemployment". The arrangement allowed the governments of China and the US to meet their short-term political goals at the expense of their citizens' futures. The Americans have no one to blame for their troubles other than their own politicians (and central bank), just like the Chinese have no one to blame for their relative poverty (and future stagnation) other than their own government. 

The US and China should shift to long-term, sustainable political programs at home before they start pointing fingers at each other. It might cause some pain in the short term, but would benefit both countries, and the world at large.

(Of course, expecting politicians to make long-term decisions might be too much, but that's a different story).

]]> How I Learned to Stop Worrying and Love the Bubble tag:www.drorism.com,2010:/blog//1.397 2010-03-16T00:19:27Z 2010-03-16T02:12:18Z 'There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or... Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1 'There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.'The above quote from Ludwig von Mises's Human Action (1949) pretty much sums up where we are and where we're headed. There are two ways out of this mess: Allowing bad banks and bad companies to go bankrupt and take some pain in the short term; or bail them out through government "creation" of more money and cheap credit.  Looks like the world has opted for the second option. 

This means we will experience a period of illusionary recovery, mostly in real estate prices and equity markets, powered by the huge amount of new money created by government(s). This illusionary recovery can last anywhere between 6 months to 10 years - depending on the amount of money being printed and on external triggers - but will eventually come to a painful stop, when all governments are deeply in debt and there's no one left to bail them out. 

Once we reach that point, governments are most likely to choose the only way out that allows them to divert public attention from their failure and get everyone to work together towards a common goal -  war. Until then, enjoy the ride. 
]]> The Politics of Economics and the Biology of Sociology tag:www.drorism.com,2010:/blog//1.390 2010-02-28T15:22:09Z 2010-03-03T02:01:59Z The latest financial crisis sparked public interest in economics and rekindled the debate concerning the proper role the dismal science should play in our lives: books by and about dead economists such as Keynes, Hayek, and Schumpeter are in high... Dror Poleg http://www.drorism.com/cgi-bin/mt/mt-cp.cgi?__mode=view&blog_id=1&id=1 civilization4.jpgThe latest financial crisis sparked public interest in economics and rekindled the debate concerning the proper role the dismal science should play in our lives: books by and about dead economists such as Keynes, Hayek, and Schumpeter are in high demand; economic blogs are more popular than ever; and the public is bombarded with introspective monologues by contemporary economists, all the way from Paul Krugman to John Chochrane. The latest contribution is a Wall Street Journal article by Prof. Russ Roberts. Unlike the opposing so-called scientific explanations for the crisis suggested by various economists, Roberts is questioning whether economic science is at all a science and suggests that more than anything, economics might be suffering from a crisis of identity. 

Roberts points out that unlike most sciences - in which progress is steady and concrete - in Economics 'theories that were once discredited surge back into favor' and since it is impossible to control for all the relevant factors in an economic experiment, each effect can be explained by a variety of causes, or a combination of causes. This, in turn, means that the  explanations for economic phenomena change in line with the political climate.

]]> The debate concerning the nature of economics can be traced back to the Battle of the Methods at the end of the 19th century. Back then, the German "Historical School", led by Gustav Schmoller, thought that economics should focus on the empirical study of history and opposed what came to be known as the "Austrian School", which was led by Carl Menger and focused on abstract theory based on analytical deductions. As Richard Swedberg points out, following the split of economics into 'two sciences', Max Weber, one of the forefathers of sociology suggested the idea of Socioeconomics, an academic synthesis of neoclassical economics and the social sciences (mostly sociology and politics). Joseph Schumpeter, arguably the greatest economist of the 20th century, also suggested that the split within economics is 'harmful' and argued for a combination of methodologies. 

Still, the divergence of economics continued and today each of its original constituents is considered an independent discipline, divided in turn to a plethora of sub-fields and specializations. If more than 100 years ago it was clear that treating economics as a purely empirical science is not a good idea, one might wonder how come this view became prevalent? It seems that the divergence of economics and the social sciences is best explained by insights from another field - politics. 

Let me explain: The 20th century saw the rise of the nanny state as the ultimate 'paternal' authority - both in socialist, fascist, and other authoritarian countries and in liberal democracies, in which government has been growing steadily over the past 100-odd years. The legitimacy of the nanny state is based on the idea that economic actions can be centrally-planned and managed by a team of skillful experts (or an enlightened despot). This, in turn, rests on on the assumption that, regardless of motivation, it is at all possible to plan and manage an economy; it rests on confidence in the fact that the consequences of each action in the field of economics are as predictable and as measurable as in the fields of physics or chemistry.

Going back to Roberts' article from this week - the latest suggestion was that economics is indeed not similar to physics, but is more like biology, in which '[b]iologists try to understand the relationships in a complex system... But they can't tell you what will happen with any precision...'. 

But even the comparison of the social sciences to biology is not new. In 1930, Zigmund Freud suggested in his Civilization and its Discontents that 'our relatives...the bees, the ants, the termites - struggled for thousands of years until they evolved the state institutions, the distribution of functions, the restrictions on individuals for which we admire them today'. Freud suggested that the process of socialization (and civilization) should be studied like any other biological process. 

Even earlier than that, in the middle of the 19th century, Karl Marx and Friedrich Engels debated the possible impact of Charles Darwin's biological discoveries on the social sciences, an impact that was summed up in Herbert Spencer's ideas of "Social Darwinism". Here too, one must wonder why the analogy between biology and the social sciences did not take root. Strangely enough, the responsibility in this case might be with religion: It is difficult for humans to come to terms with the idea that they are no different from all other living organisms and that their fate is a result of deterministic biological processes. 

In summary, economics, history, and sociology split because of politics, and none of them was acknowledged as a subset of biology due to the influence of theology. Facing pressures from two of the most powerful institutions of our time - religion and the state - there's little wonder that the majority of economists gave up trying to make sense and ended up spending most of their time apologizing for the status quo. 
]]>