03 April 2008

Share it fairly but don't take a slice of my pie

Just got back from two very interesting lectures in Trinity, both given by new Economics professors, roughly on the subject of international development. Its been a while since I've been to an inaugural lecture in Trinty (well over ten years), a tradition whereby newly minted professors (or professors new to Trinity) give a talk to their peers on the areas of their current research. Having no formal background in Economics but armed with a sporadic perusal of a recently purchased "Dummies Guide to Economics" I felt emboldened enough to attend this academic double-header, and am quite pleased with what what I took home with me; few answers, and more questions, certainly the seeds of much future Amazon purchases.

Patrick Honohan, Professor of International Financial Economics and Development, spoke extensively on financial systems for poorer countries, particularly in the developing world. Of most interest to me was his analysis of the benefits of microfinance schemes, the Long Tail of the ethical finance world. Microfinance schemes serve as community lending and savings groups, funding those on the lowest rungs of the financial ladder who would receive no attention from regular financial institutions. The scheme's focus is to stimulate local business and overcome poverty on a local scale, rather than generate profits for the lending institution. He also discussed an interesting interpretation of the Islamic prohibition on usury, an interpretation which views the ban as one on making excessive profit from money lending, or seeking to make gain from other's unfortunate circumstances. This interpretation would allow the lending of money in a microfinance scheme, but would expressly forbid the targeting of the economically underprivileged by sub-prime mortgage sharks.

His main take-home was that credit issuing in developing economies needs to be done in a personal way, based upon an actual relationship between the lender and the borrower. In effect he argues for a return to the traditional role of the bank manager, who personally met with prospective borrowers and assess them in person, rather than decisions based purely on a computer analysis. This is because current predictive models do not work well in developing economies both due to a lack of historical data, and the unique motivations behind such lending, namely the encouragement of an SME sector to develop where none currently exists.

Frank Barry, Professor of International Business and Development, spoke mostly on the development of the current Irish economy, with some suggestions on lessons developing nations could draw from this. He began with the premiss that prosperous economies tend to arise in functioning liberal democracies, and by liberal he means with a free press, independent judiciary and meritorious civil service. Although China does appear to be a current notable exception to this rule he suggested that liberal political reforms would be an inevitable consequence of a newly prosperous middle class. Drawing from Ireland's own history he argued that the land redistribution policy of the 1900's did nothing for improving agricultural efficiencies, rather by facilitating the growth of a land owning middle class it directly contributed to the rise of a stable democracy in post independence Ireland, in contrast to many European nations in the 30's.

Quoting from Bill Kissane's "Explaining Irish Democracy" he argued that a middle class has the most to benefit from a liberal democracy, and are well positioned to bring one about. The Upper Class have nothing to gain from democracy, and oppress the working class to the point that they are unable to effect change. However the Upper Class comes to be dependent on the Middle Class for many things, and eventually bows to their demands for greater participation in governance, thus as Barry argued, democracy depends upon the bourgeoisie.

Barry also spoke at length about the conditions that allowed for recent economic growth in Ireland, and while I don't agree with much of what he said, he used an interesting quote from Garret Fitzgerald (probably our best Taoiseach who ironically achieved the least, Irelands' Josiah Bartlet on paper, as played by William H. Macey on stage):
"Democratic governments tend to be subject to such strong pressure from vested interests within their own territories that many of their decisions operate against the interest of society as a whole"
What is essential, Barry suggests, to the emergence and success of a liberal democracy are independent meritorious civil organisations that serve as natural checks and balances to the kleptocracy that politics normal engenders.

The rose-coloured lens through which he views the democracy-saving role of the Civil Service does not gel easily with my hardened impression of the institution as being on the whole neither civil, nor serving. However if you examine the sheer number of political appointees to all levels of US civil institutions (1,640 by the Bush administration in 2005, an increase of over 33% on 2000), you start to understand how so many reports that contradicted Bush policy and ran contrary to the interests of Bush's financial backers and industry lobbyists (such as EPA and State Department reports on Climate Change) were systematically suppressed. Without the checks and balances of an independent civil service, this administration has become perhaps the greatest American kleptocracy of all time.

With this new found appreciation for the role of the Civil Service in mind, the true value of lectures such as those tonight thus lies in their ability to force me to question long standing beliefs, and leave me uncomfortable with long held assertions.


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