Sunday, November 27, 2005

A hectic week

It's been a hectic week.

Last weekend I came to conclude that some kind of democratization does increase government consumption (see 19th October). If the dictator holds democratic elections without running for office himself, government consumption goes up. If the dictator runs for office, either winning or losing, government consumption does not change.

Last Monday I attended Torsten's lecture, realising one of his latest working papers deals with almost exactly the same question as the one I've been investigating - how democratization affects government consumption. His conclusion is that democratization followed by the parliamentary form of government increases government consumption while that follwoed by the presidential form of government does not.

Which is correct? The rest of Last Monday was spent on finding it out. The conclusion is Torsten is right and I'm wrong.

The next morning I talked to Torsten on this. He seems happy. :) But it seems to me that this is the result I was looking for. This government consumption project seems to reach its conclusion. So what should I do next?

On Thursday, I talked to Tim on this. When I started talking about my idea that turned out to be wrong, he showed his interest in whether or not the dictator runs for office. I used it as a right hand side variable (a variable explaining something else). He suggested to use it as a left hand side variable (a variable to be explained). Conversations flew and leadership survival in autocracy - when economic conditions make a difference in leadership turnover in autocracy - came out as a promising research topic. There is a huge literature on this in politicla science. But, as usual with political science, there has been no formal theory and their regressions always suffer from endogenous bias (ie. unable to tell the direction of causality). So there is room for an economist (ie. me) to investigate the issue.

Somehow, I saw some light. But the story didn't end here. (To be continued...)

Friday, November 25, 2005

A French dinner with Kotono at Victoire Pierre

It's been more than a month since I had dinner with Kotono last time.

Tonight we have a French dinner at Victoire Pierre, probably the one and only French restaurant in London that's affordable. It is a fantastic dinner. Especially what Kotono ordered is all big hits: mussels in tomato soup for a starter and duck with burgundy sauce for a main dish. My starter, foie grass, is excellent while my main dish, salmon fillets with cauliflowers in white sauce, is too peppery...

Kotono, a violinist, is going to compose several tracks and release an album from an independent record label next year. She says she wants to make music that's comfy but not cheesy. So I say, "Why not liquid funk, smooth drum & bass?"

Unexpectedly she shows her interest in this underground genre of music. I'm going to send her MP3 files of liquid funk to inspire her creativity. That's exciting!

Tuesday, November 22, 2005

Tips 4 Economists

Created a list of links to tips for economists. Some are famous; others are probably less famous. If you know any other sources, let me know.

Sunday, November 20, 2005

Dim sum in style

Had dim sum lunch at Ping Pong with Cheyok and her friends.

I don't particularly like Chinese cuisine. But when it is served in style, I like it. Ping Pong, a dim sum restaurant in Soho, is hardly an ordinary Chinese restaurant. As the design of its official website suggests, its decor is like a cafe in a contemporary art museum. What impressed us was their jasmine tea. A tall glass with a ball-shaped dried jasmine leaf in it is served for each of us. A waiter pours hot water in it. Then the jasmine leaf ball begins budding, a jasmine flower emerging. It does taste proper jasmine tea. When you finish it, a waiter adds hot water again. I should have brought my camera to show this to this blog's readers...

If you like the way Chinese people eat foods, maybe this place is a bit too sophisticated and pretentious. But if you like Chinese foods but don't like the messy atmosphere typical of East Asia, this is your place to go.

There's another Chinese restaurant of this kind in Soho: Yauatcha (see 11th September 2004). Some say, according to Cheyok, that if Yauatcha is Prada in the comtemporary Chinese restaurant industry, Ping Pong is Miu Miu. I personally prefer Ping Pong.

Oh, the bill was 15 quid each. Not too bad at all, heh?

Thursday, November 17, 2005

A "cabaret club"

A weird court ruling in Tokyo.

But I suppose non-Japanese people are puzzled at reading this news. What's a "cabaret club"? It's not a cabaret. My English dictionary says, "A cabaret is a restaurant or nightclub where live entertainment such as dancing, singing, or comedy is performed." No, if you go to a cabaret club in Japan, you won't see live entertainment.

This is a place for adult men to drink and have a chat with hostesses. That's the whole purpose of cabaret clubs. Some customers end up having intimate relationships with hostesses though cabaret clubs themselves are not part of Japan's infamous sex industry. (A distinction is a bit blurry, though.) It sometimes happens that a married man costs his family by falling in love with a cabaret club hostess. Smart businessmen or elite bureaucrats can be customers as well. Hostesses are therefore required to have a good skill to strike interesting conversations with such smart guys. Appearance is obviously an important factor to get loyal customers. In a way, the above court ruling is understandable.

If you are a man and work in a company or in a government office, your boss - who is almost always a man in Japan - often takes you to a cabaret club after working hours. As you might know, you can't reject such offers even if you have a girlfriend or wife. Going to cabaret clubs is not a shameful thing in front of your male collegues and friends. This kind of thing is part of the reasons I didn't try to get a job in Japan after finishing a college.

By the way, Japanese people call cabaret clubs kyabakura ("caba" plus "clu" - we like abbreviating a phrase this way). You almost never hear someone say "cabaret club" in full length.

The above description of cabaret clubs may be wrong as I haven't been to such places - I don't like drinking in the first place, plus I don't like such girls as working at cabaret clubs. If you are a Japanese man and spot a wrong description, post a comment anonymously.


I think the judges are frequent customers...

Saturday, November 12, 2005

Mikami Chisako

Maybe I can sometimes introduce Japanese pop music to the reader of this blog.

Mikami Chisako (her offical website is unfortunately all in Japanese, but you can still enjoy photo gallery etc.) is definitely not a household name in Japan, but I think she represents a kind of Japanese-ness that Westerners increasingly appreciate these days. Soundwise, those who like British music probably like her music. Her music videos are art-house-ish, a bit underground, though. Check out her music videos (click links to play videos with your Windows Media Player):

Sou Tai Kei (meaning relative form - but "Sou Tai" can be read as "Aitai (I miss you)", which is endlessly repeated in the song)


Fundamental (version 1)

Fundamental (version 2)

Viva la Revolucion

I still remember when I first saw her on television. I thought she was my ideal person. :) That's not true any more, but I still feel some kind of sympathy with her. Maybe I plainly like her skinny, fragile, and sensitive (but aggressive and dangerous at the same time) appearance mixed perfectly with her music.

Wednesday, November 09, 2005

A reflection on inefficient policies

(This is a preliminary draft. Comments are welcome.)

Why do governments in poor countries implement growth-retarding policies? Acemoglu (2005) discuss the following two mechanisms leading to inefficient policies: revenue extraction and factor price manipulation. (He suggests yet another mechanism, namely, political consolidation. But I personally don't buy this idea. So I put it aside here.)

Revenue extraction is a mechanism in which the government expropriates portions of profits earned by entrepreneurs. By taxing production, entrepreneurs' incentive to produce is discouraged, which also limits the scope of expropriation. Therefore, this mechanism does not completely discourage private production.

Factor price manipulation, on the other hand, is more deleterious. In this mechanism, the government distorts the allocation of factors of production by applying different de facto tax rates across production sectors. This creates rent earned by owners of production factors, which is extracted by the government. This is more harmful to the economy than revenue extraction for two reasons. First, if the government is not constrained at all, it prefers shutting down some industries completely in this case. In the case of revenue extraction, that would reduce tax revenues to zero, which the government does not want. Second, factor price manipulation hinders not only investment - as in the case of revenue extraction - but also the economy's overall productivity as well. A typical example of factor price manipulation is the regulation of entry of start-up firms.

Notice that while revenue extraction requires the government's capability of tax collection (including demanding bribe payments - if you don't pay me money, I'll shut down your business - and asset confiscation), factor price manipulation does not because the government can simply put up entry barriers to a certain sector. (This may not be true as the government still needs some means of enforcement in the case of factor price manipulation...)

Revenue extraction can be prevented if either of the following two conditions is satisfied.

1. The government is unable to collect taxes.

2. Separation of power along with checks and balances is set up. See Persson et al. (1997).

In terms of political development, it's the middle stage of development that is most susceptible to rent extraction.

Factor price manipulation can be prevented if either of the following two conditions is satisfied.

3. Factor price is inelastic. For example, Acemoglu (2005) shows that if the labour market is loose (supply of labor exceeds demand) in the absence of government policies, factor price manipulation is impossible as wages cannot be lowered further.

4. Political competition is stiff enough for the government's survival probability to be less than one and the electorate prefers no factor price manipulation. See Besley et al. (2005). Djankov et al. (2002)'s finding that limited and representative governments tend to have fewer entry regulations (after controlling for income) may or may not support this claim as they do not use a measure of political competition, which can be proxied by measures of limited and representative governments.

Condition 4 may not be sufficient to eradicate factor price manipulation. Krusell and Rios-Rull (1996) show that even a pure majority voting by citizens ends up preventing the adoption of new technology if managers with old technology outnumbers the rest of society. In reality, however, this is unlikely. The distribution of managers and workers in their model should be interpreted as de facto power (voting plus lobbying etc.) distribution.

For growth to be maximised, at least one of conditions 1 and 2 and at least one of conditions 3 and 4 have to be satisfied. Rich countries can be said to satisfy conditions 2 and 4. A very poor economy may be growing fast because condition 1 is met due to a poor government capability and because condition 3 is satisfied due to abundant labour.

It may be the case that East Asia follows a path from one situation in which conditions 1 and 3 are satisfied to another in which the government becomes capable of collecting taxes but labour market is still loose. As revenue extraction is less harmful than factor price manipulation, the failure of condition 1 only can sustain a reasonably high growth.

Africa, on the other hand, may follow a different path in which condition 3 fails before condition 1 does. This may be true given that African countries are generally not so densely populated. As a result, factor price manipulation completely retards growth, which sounds similar to what Bates (1981) describes (Robin Burgess's lecture note succinctly summarises this book).

Evidence seems to suggest that factor price manipulation matters more than revenue extraction to understand economic growth. Jones and Olken (2005) find that when economic growth accelerates, it is not because factor accumulation accelerates but because technological progress accelerates. As revenue extraction per se does not affect technological progress (it just discourages private investment, hence factor accumulation), it is when the government stops manipulating factor prices that economic growth takes off.

Sunday, November 06, 2005

What is democracy?

(This post is a preliminary draft - comments are welcome. Last modified on 17th November 2005)

Political scientists and economists love to explore the relationship between democracy and socio-economic outcomes (Barro 1996, 1999; Przeworski et al. 2000; Bates et al. 2003; Glaeser and Shleifer 2005; Persson and Tabellini 2005). By democracy, however, we can mean different things. Unless we define democracy in a certain way, we are unable to develop a theory to understand the effect of democracy on, say, economic growth. It may be the case that some aspects of democracy are good for growth while others are not. Or, all aspects of democracy are complementary - a single aspect of democracy alone is not enough to ensure some outcomes; it works only if other aspects of democracy are also present.

Motivated by Levitsky and Way (2002)'s article on what they call "competitive authoritarianism", here I try to make a checklist for a country to be qualified as "democracy".

There are three stages to look at: (A) pre-election, (B) electoral process, and (C) post-election.

A: Pre-election

In the pre-election stage, the incumbent government lays the ground rule for competition for national political office (executive and legislature). A country is democratic at this stage if the following six criteria are met.

A1: Suffrage is universal - (nearly) all adults can vote.
A2: The executive is directly elected or indirectly elected by legislature.
A3: Elective legislature exists.
A4: Opposition parties are allowed to exist.
A5: No gerrymandering (ie. manipulating electoral rules and districts in favour of the ruling party) is undertaken.
A6: Press freedom is ensured.

Outright autocratic countries are disqualified at this stage - South Africa during apartheid did not satisfy A1 though it did satisfy A2-4. The military government seizing power by a coup is disqualified due to requirement A2, even if it satisfies A3 and A4 as is the case in Brazil during 1964-1985. The communist countries such as China and Cuba do not satisfy A4 while A2 and A3 may be satisfied - elections can take place without opposition such as Saddam Hussein, who claimed 100% voting share in an uncontested presidential election in 2002 (see a BBC article on it).

A1 is more subtle than it appears to be. In the United States South, black voters were de facto denied participation in elections by poll taxes and literacy tests until the 1960s. See Besley et al (2005).

Kenneth A. Bollen provides a dataset of suffrage across countries for 1950-2000. As long as you decide the threshold, you can tell whether or not A1 is satisfied in a country in a certain year with this dataset.

Acemoglu and Robinson (2005)'s theory of democratization mainly looks at A1 though the fact that in their model policies preferred by the median voter are adopted in a democracy implies that A2-A4 are implicitly taken into consideration. (If no opposition candidate is allowed to run for office, the single candidate can choose whatever policy he/she wants and gets elected.)

The minimalist way of defining democracy only looks at A2-4 (sometimes A1 as well). A good example is Przeworski et al. (2000)'s definition of democracy. As they are only concerned with the period after the Second World War, they ignore A1. But when you look back at pre-WWII periods, today's Western democracies initially didn't satisfy A1 by, for example, denying women their voting right. So Carles Boix, when he extends Przeworski (2000)'s dataset to the 19th and early 20th centuries, includes A1 as requirement for democracy.

The minimalist definition of democracy becomes problematic if you see countries such as Singapore, which satisfies A1-4 - it does satisfy A4: look at the list of political parties by - but does not meet requirement A5 and A6. To avoid such complications, Przeworski et al (2000) come up with another requirement, which is to say power has to be alternated under the same electoral rule. This disqualifies Singapore as the same party has ruled the country ever since independence. This qualifying rule is quite successful to exclude "dodgy" democracies - Mexico and Senegal until 2000. But this is an outcome-oriented way of defining democracy. Theoretically, it's not clear whether, say, the Singaporean ruling party keeps power because of its undemocratic feature or because of its popularity among citizens. (Japan and Botswana are cases in point.) If you want to analyze the effect of democracy on political and economic outcomes, this is not appropriate to measure democracy. So I drop this requirement here.

A6 may not be appropriate either. Theoretically, press freedom is important to ensure that the incumbent's bad performance leads to electoral defeat - if voters do not know what the incumbents do, they may not want to vote them out. See Besley and Burgess (2002) and Besley and Prat (2005). So A6 is probably more appropriate to label as an institution complementing democracy, rather than a requirement for democracy. Freedom House's Press Freedom Survey provides yearly cross-country data on the degree of press freedom since 1980.

B: Electoral process

In the electoral process, the incumbents and opposition candidates compete for office given the conditions characterised by the above six aspects of pre-election. A country is called a democracy in this stage if it meets the following four criteria.

B1: Opposition candidates can freely run for office.
B2: Opposition candidates can freely conduct their electoral campaign.
B3: Voters can freely cast their ballots.
B4: Votes are neutrally counted.

Here what Levitsky and Way (2002) call competitive authoritarianism kicks in. It satisfies A1-A6 and B3-B4 more or less but it doesn't meet B1 and B2. B1 can be violated if the government arrests opposition politicians. B2 can be violated if the government denies opposition parties access to media.

B3 is related to the issue of secret balloting. Even in Western countries the secret ballots were introduced quite recently. See Baland and Robinson (2004).

B3 is also violated if voters are physically prevented from voting, as seen in Sri Lanka's 2005 election (in this case it's a rebel group, not the government, who prevented voters from voting, though).

The violation of B4 is what we call electoral fraud. The World Bank's Database of Political Institutions provides cross-country data (since 1975) on this (see variable FRAUD). Levitsky and Way (2002) point out that competitive authoritarianism often breaks down when it resorts to the violation of B4 - Marcos in the Phillipines and Milosevic in Serbia and Montenegro are cases in point. Ukraine's "Orange Revolution" can be included in this case though the incumbent himself didn't run.

C: Post-election

In the post-election stage, even the government elected in elections satisfying all the above conditions can become non-democratic if either of the following conditions is violated.

C1: The executive is checked and balanced by legislature and judiciary.
C2: Non-elective veto players do not intervene politics.

C1 is violated if a democratically elected president disbands legislature - such as Marcos in the Phillipines and Fujimori in Peru - or if the executive fires constitutional court judges after their ruling against the government. POLITY IV's "Executive Constraint" variable (named XCONST or EXCONST) measures this aspect of democracy, and according to North and Weingast (1989) - "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in 17th Century England," Journal of Economic History, vol.49, pp.803-32 - this is an important factor for secure property rights.

C2 is violated if the military or some religious authority intervenes politics. Examples of the former case are Thailand until the early 1990s and Turkey while Iran is a typical example of the latter.

An Application - Zimbabwe since 2000 -

With this list in hand, this article by The Economist magazine on Zimbabwe's parliamentary elections in 2005 is much easier to understand.

(Note that MDC is the main opposition party in Zimbabwe, and ZANU is the ruling party led by President Robert Mugabe.)

This country satisfies conditions A1-A4. A1 may not be satisfied as

"the 3m-odd Zimbabweans, most of them very likely MDC backers, who have been driven into exile by economic collapse or government repression, are barred from postal voting."
(But it wasn't until 2000 that Japanese citizens living abroad were allowed to vote, either.)

But Zimbabwe violates almost all other criteria.
"Since last time, constituency boundaries have been gerrymandered. A handful of MDC-held seats in populous urban areas have been abolished and new constituencies demarcated in rural areas where land-hungry peasants are friendlier to ZANU. Some urban seats have been merged with neighbouring rural ones, where voters are more pliable and ballot boxes in remote parts more easily stuffed."
This is a violation of A5.
Zimbabwe's most independent newspapers, notably the Daily News, remain closed, and ZANU virtually monopolises radio broadcasts.
This is a violation of A6.
Human Rights Watch, a New York-based group, reported less violence than before but said that intimidation and partisan laws give ZANU a huge advantage. It enumerates dozens of recent cases of MDC people being beaten, kidnapped and harassed by police and ZANU thugs.
B1 seems violated as well.
During the last general election, thugs and veterans of the independence war were paid to kill opposition campaigners... Now, because he wants to avoid shocking observers from South Africa (even though he is letting in only those he thinks most sympathetic), he is adopting subtler rigging techniques.
B2 was violated in the previous election but to a lesser degree in 2005 as
the MDC and Mr Tsvangirai are being given a few minutes of air time on the state television news (followed, of course, by an hour or so of Mr Mugabe and other ZANU leaders).

In the 2002 presidential election, B3 was violated:
Two years later, in 2002, the MDC's leader, Morgan Tsvangirai, a trade unionist, would surely have unseated Mr Mugabe in a presidential election, had the police not beaten up opposition voters, blocked people from reaching polling stations...
In 2005, the situation remains the same as
villagers are being told that ZANU agents will know, by looking through the transparent new boxes, who has voted for the MDC.
In the 2000 general election, B4 was violated:
The MDC lodged complaints about alleged vote-rigging in 37 constituencies which ZANU was adjudged to have won; but the courts, heavily influenced by the president and his friends, have failed in the past five years to deal with a single such case.
In 2005, the situation remains the same:
Of a sample group of 500 voters, barely half were listed correctly. Nearly a fifth of those named were dead; officials ensure that such "ghosts" are loyal ZANU voters.

Thursday, November 03, 2005

Presentation postponed

My presentation, scheduled a week on Monday (14th), is postponed to the first week of next term. A job market candidate who was supposed to present next Monday takes my slot as another job market candidate also presents his work at the same time next Monday in a different PhD student seminar (the macroeconomics field), dividing LSE faculty members as the audience. For job market candidates, giving presentations at this time of the year is a practice for their job talks early next year. So it's good for them to have as many faculty members as possible in the audience and to have them provide critical comments. Since last year, the LSE faculty has got more serious on the placement of their job market candidates (that's my impression). So their presentations are given higher priority than mine.

Which is very lucky to me. I was still struggling to find what I could talk about a week on Monday. I repeatedly thought about cancelling the presentation. Now I can cancel it for a good reason. Hooray!

(If you don't know anything about "job market candidates", have a look at this guide, and you'll know what job hunting for economics PhD graduates is like.)

Tuesday, November 01, 2005

Chase and Status - 'Duppy Man'

The second instalment of the Let-Everyone-Listen-At-Least-Once-To-Drum-and-Bass campaign. :)

One reason for why the majority of people don't listen to drum & bass is its instrumental nature. Most drum & bass tracks feature no vocals. The majority do not like music without someone singing.

Things seem to begin changing in the drum & bass scene these days. More and more vocal tunes are produced - a good example is Shy FX and T-Power's 'Feelings'. Pendulum, an Australian trio emerging in the drum & bass scene during the past couple of years, put out 'Tarantula', which broke into top 50 of the UK Official Chart a few months ago.

Now you have this: Chase & Status 'Duppy Man' (listen to a sample). This track is a good example of how drum & bass meets dancehall reggae. It hits the top spot in BBC 1Xtra drum & bass chart this week. Listen, then you'll decide whether you like it or not. Do not hate it without listening to it.