Where the buck stops

In the 1970s and 80s, those of us struggling to reform the state (both national and local) talked about “generating understanding and commitment” and of the three basic tests for new proposals – Feasibility, legitimacy and support. “Does it work?” “Does it fall within our powers? And “will it be accepted?” The World Bank’s Governance Reforms under real world conditions (to which I have referred several times on the blog) is written around the sorts of questions we consultants in transitions country deal with on a daily basis -
1. How do we build broad coalitions of influentials in favour of change? What do we do about powerful vested interests?
2. How do we help reformers transform indifferent, or even hostile, public opinion into support for reform objectives?
3. How do we instigate citizen demand for good governance and accountability to sustain governance reform?

The paper by Matthew Andrews which starts part 2 of the book weaves an interesting theory around 3 words – „acceptance”, „authority” and „ability”. What Andrews means by these 3 terms is sketched out as follows -

Is there acceptance of the need for change and reform?
• of the specific reform idea?
• of the monetary costs for reform?
• of the social costs for reformers?
• within the incentive fabric of the organization (not just with individuals)?

Is there authority:
• does legislation allow people to challenge the status quo and initiate reform?
• do formal organizational structures and rules allow reformers to do what is needed?
• do informal organizational norms allow reformers to do what needs to be done?

Is there ability: are there enough people, with appropriate skills,
• to conceptualize and implement the reform?
• is technology sufficient?
• are there appropriate information sources to help conceptualize, plan, implement, and institutionalize the reform?

Obviously, the world of Technical Assistance tends to assume that it is the latter which is the problem – since the people there who act as experts are strong on training. In the paper I referred to on Monday, Sorin Ionita applies this framework to Romania and suggests that

constraints on improving of policy management are to be found firstly in terms of low acceptance (of the legitimacy of new, objective criteria and transparency); secondly, in terms of low authority (meaning that nobody knows who exactly is in charge of prioritization across sectors, for example) and only thirdly in terms of low technical ability in institutions

The final version of my NISPAcee paper tries to identify all the papers which have assessed the impact of all the efforts to put government processes in transition countries on a more open and effective basis. In particular I was interested to find those which actually looked critically at the various tools used by Technical Assistance eg rule of law; civil service reform; training; impact assessment etc. One of my arguments is that that it is only recently that such a critical assessment has started – eg of civil service reform.
The one common thread in those assessments which have faced honestly the crumbling of reform in the region (Cardona; Ionitsa; Manning;Verheijen) is the need to force the politicians to grow up and stop behaving like petulant schoolboys and girls. Manning and Ionitsa both emphasise the need for transparency and external pressures. Cardona and Verheijen talk of the establishment of structures bringing politicians, officials, academics etc together to develop a consensus. As Ionita puts it succinctly –

If a strong requirement is present – and the first openings must be made at the political level – the supply can be generated fairly rapidly, especially in ex-communist countries, with their well-educated manpower. But if the demand is lacking, then the supply will be irrelevant.

On Sunday, when rain washed away the tennis at Queen's, I enjoyed watching this great spontaneous performance on a similar occasion some years back.

back in the Carpathians

As I drove across the Balkans yesterday to a workshop in Pleven, the clouds trapped over Sofia slowly lifted. I realised that my blog banner-heading (Carpathian Musings) was no longer quite precise – for the last 2 months they have been Balkan Musings. But, with a brief pause last night in the Bucharest flat (for a bath and my first sight of TV for a couple of months) and breakfast in Ploiesti with Daniela), I am now back in the mountain house and already feeling so relaxed. It’s apparently been pouring here for the past 2 weeks – with very violent winds – but the house is fine (although it’s amazing how much dust comes down from the attic onto my books!). My 80 plus years old neighbours were looking healthy and pleased to see me (as was their small dog and cow who was munching my long grass). I at last remembered to text Gotche Gotchev’s old brother in Sofia to go round and feed the Siamese cat in Sofia while I am away these few days.
I used to think Vodaphone internet was a good deal here – but every time I come back I have to pay back-money (24 euros this time for the 2 months I was absent) in order to get reconnected for the few days I am here (and the reception is rubbish). So please don’t tell me about the economic benefits of Europe! And on 1 July back in Sofia I have to make further payments for the wireless connection there. Will someone tell me why I can’t subscribe to a European internet stick which is valid wherever I go??????

And, while on the subject of Europe, the hotel on the crest of the hill opposite (thanks to SAPARD funds) continues to grow to the disfigurement of the landscape and the financial disadvantage of the more traditional bed and breakfast people like my old neighbours (who need the cash). What waste this is – that some (favoured) investors are favoured to spoil villages while others survive on their own. There is absolutely no need for financial asssistance for this sacrilege. I should link up to the Bucharest editor of the ecological journal who has never retuned to her old house opposite since the first hotel (on the bottom of valley – but with ostriches) first spoiled her view more than a decade ago.

Why Romania politics is so rotten - path dependency

In our relentless celebration of the "new", we undervalue what has been written even a few years ago. Somehow we assume that it is passe - that we have built on it and used it to move to a new peak of understanding (the eternal illusion of progress - "upward and onward"!). The reality is rather amnesia and, at best, reinvention
For example, aasily the most useful paper for those trying to understand lack of governance capacity in many countries I’ve worked in during the past 20 years is one written by Sorin Ionita 5 years ago and was languishing in my library until I discovered it while revising my Varna paper- Poor policy-making and how to improve it in states with weak institutions. His focus is on Romania but the explanations he offers for the poor governance in that country has resonance for many other countries -
• The focus of the political parties in that country on winning and retaining power to the exclusion of any interest in policy – or implementation process
• The failure of political figures to recognise and build on the programmes of previous regimes
• Lack of understanding of the need for „trade-offs” in government; the (technocratic/academic) belief that perfect solutions exist; and that failure to achieve them is due to incompetence or bad intent.
• The belief that policymaking is something being centered mainly in the drafting and passing of legislation. „A policy is good or legitimate when it follows the letter of the law − and vice versa. This legalistic view leaves little room for feasibility assessments in terms of social outcomes, collecting feedback or making a study of implementation mechanisms. What little memory exists regarding past policy experiences is never made explicit (in the form of books, working papers, public lectures, university courses, etc): it survives as a tacit knowledge had by public servants who happened to be involved in the process at some point or other. And as central government agencies are notably numerous and unstable – i.e. appearing, changing their structure and falling into oblivion every few years - institutional memory is not something that can be perpetuated”
Ionita adds other „pre-modern” aspects of the civil service – such as unwillingness to share information and experiences across various organisational boundaries. And the existence of a „dual system” of poorly paid lower and middle level people in frustrating jobs headed by younger, Western-educated elite which talks the language of reform but treats its position as a temporary placement on the way to better things. He also adds a useful historical perspective -

Entrenched bureaucracies have learned from experience that they can always prevail in the long run by paying lip service to reforms while resisting them in a tacit way. They do not like coherent strategies, transparent regulations and written laws – they prefer the status quo, and daily instructions received by phone from above. This was how the communist regime worked; and after its collapse the old chain of command fell apart, though a deep contempt for law and transparency of action remained a ‘constant’ in involved persons’ daily activities. Such an institutional culture is self-perpetuating in the civil service, the political class and in society at large.
A change of generations is not going to alter the rules of the game as long as recruitment and socialization follow the same old pattern: graduates from universities with low standards are hired through clientelistic mechanisms; performance when on the job is not measured; tenure and promotion are gained via power struggles.
In general, the average Romanian minister has little understanding of the difficulty and complexity of the tasks he or she faces, or he/she simply judges them impossible to accomplish. Thus they focus less on getting things done, and more on developing supportive networks, because having collaborators one can trust with absolute loyalty is the obsession of all local politicians - and this is the reason why they avoid formal institutional cooperation or independent expertise. In other words, policymaking is reduced to nothing more than politics by other means. And when politics becomes very personalized or personality-based, fragmented and pre-modern, turf wars becomes the rule all across the public sector.”

The new, post ’89 elites, who speak the language of modernity when put in an official setting, can still be discretionary and clannish in private. Indeed, such a disconnection between official, Westernized discourse abroad and actual behavior at home in all things that really matter has a long history in Romania. 19th century boyars sent their sons to French and German universities and adopted Western customs in order to be able to preserve their power of patronage in new circumstances − anticipating the idea of the Sicilian writer di Lampedusa that “everything has to change in order to stay the same”. Social theorists have even explained along these lines why, before Communism, to be an official, a state employee or a lawyer was much more common among the national bourgeoisie than to become an industrialist or merchant: because, as a reflection of pervasive rent-seeking, political entrepreneurship was much more lucrative than economic entrepreneurship.
This also shows why foreign assistance is many times ineffective in these states, and is seldom able to alter the ways of the locals.

This series of explanations for Romania's poor governance ratings is an example of what the academics call "path dependency" - the past constraining the possibilities of the present. My Varna paper spent so much space summarising the various papers that I couldn't actually address the question of what the reformer's strategy might be in such countries. I hope to explore that in a future post.

That's how the cookies crumble....and control!

I noticed today that my friend in Brussels gets very different results from his google searches. And, coincidentally, I had found the answer a few hours earlier in an article which warned me that -

the top 50 internet sites, from CNN to Yahoo to MSN, install an average of 64 data-laden cookies and personal tracking beacons each. Search for a word like "depression" on Dictionary.com, and the site installs up to 223 tracking cookies and beacons on your computer so that other websites can target you with antidepressants. Open a page listing signs that your spouse may be cheating, and prepare to be haunted with DNA paternity-test ads.

Such is the worrying intro to this excerpt from a new book on internet search engines which continues -

The race to know as much as possible about you, has become the central battle of the era for internet giants like Google, Facebook, Apple and Microsoft. As Chris Palmer of the Electronic Frontier Foundation explained to me: "You're getting a free service, and the cost is information about you. And Google and Facebook translate that pretty directly into money." While Gmail and Facebook may be helpful, free tools, they are also extremely effective and voracious extraction engines into which we pour the most intimate details of our lives. In the view of the "behaviour market" vendors, every "click signal" you create is a commodity, and every move of your mouse can be auctioned off within microseconds to the highest commercial bidder. The internet giants' formula is simple: the more personally relevant their information offerings are, the more ads they can sell, and the more likely you are to buy the products they're offering. And the formula works. Amazon sells billions of dollars in merchandise by predicting what each customer is interested in and putting it in the front of the virtual store. Up to 60% of US film download and DVD-by-mail site Netflix's rentals come from the guesses it can make about each customer's preferences.
You may think you're the captain of your own destiny, but personalisation can lead you down a road to a kind of informational determinism in which what you've clicked on in the past determines what you see next – a web history you're doomed to repeat. You can get stuck in a static, ever- narrowing version of yourself – an endless you-loop.
And there are broader consequences. In Bowling Alone, his book on the decline of civic life in America, Robert Putnam looked at the problem of the major decrease in "social capital" – the bonds of trust and allegiance that encourage people to do each other favours, work together to solve common problems, and collaborate. Putnam identified two kinds of social capital: there's the in-group-oriented "bonding" capital created when you attend a meeting of your college alumni, and then there's "bridging" capital, which is created at an event like a town meeting when people from lots of different backgrounds come together to meet each other. Bridging capital is potent: build more of it, and you're more likely to be able to find that next job or an investor for your small business, because it allows you to tap into lots of different networks for help. Everybody expected the internet to be a huge source of bridging capital. Writing at the height of the dotcom bubble, Tom Friedman declared that the internet would "make us all next-door neighbours". But that's not what's happening: our virtual neighbours look more and more like our real-world neighbours, and our real-world neighbours look more and more like us. We're getting a lot of bonding but very little bridging. And this is important because it's bridging that creates our sense of the "public" – the space where we address the problems that transcend our narrow self-interests.
As a consumer, it's hard to argue with blotting out the irrelevant and unlikable. But what is good for consumers is not necessarily good for citizens. What I seem to like may not be what I actually want, let alone what I need to know to be an informed member of my community or country. "It's a civic virtue to be exposed to things that appear to be outside your interest," technology journalist Clive Thompson told me. Cultural critic Lee Siegel puts it a different way: "Customers are always right, but people aren't."

How to deal with this? The discussion thread had the following ideas -
• There are still other search engines, such as Dogpile, and GoodSearch, which even lets you designate a charity to get about a penny for each search you do. (It adds up if a lot of people choose that charity.)
• Simple answer, just click on everything. They want data, give 'em loads
• Deleting cookies would be a good start? A simple way to do this is to use Firefox, go to Tools / Options and choose the cookies setting 'Keep until I close Firefox'. But this poses priblems for people such as me who want o shop at Amazon and pile books into a basket for subsequent editing…

the cancer eating us

In Just Words a sceptic’s guide to administrative vocabulary I sounded off about how words can take over our thinking – and offered some definitions. Here’s a great illustration from the Real World Economics blog-

I am tired of economists, policy makers, and others mentioning markets. As in “let the market decide” or “we should let the market heal itself.” Enough. Markets are us. They are not great mysterious forces. They are not abstractions hovering in mid air. They are not supply and demand. They are not amorphous inanimate systems. They are not mechanisms.They are none of these things.
Markets are people. Sometimes lots of people. Sometimes a few people. Without people there are no markets. Sometimes working well. Other times not so well. Sometimes rigged. Sometimes not rigged. Each unique because the people that comprise it are different. Sure we can mimic them. We can model them. We can identify some regular characteristics of transactions that seem to occur whenever people transact. But we cannot get rid of the people in a market.
People matter. They can change the properties we see as regularities if they so choose. They can collude. They can organize. They can interfere with each other. They can exclude others. In other words markets are human made. They reflect people. And what people want to do. Markets do not exist to impress upon people. People impress upon markets. Markets do not dictate what we do or how we do it. We dictate what a market is and how it works. We are the market.
The allure of the abstraction is that it diverts our attention from the people who animate the market. Thus it is convenient for a policy maker to talk about a market correction instead of having to say someone lost money or their job. It sounds less threatening. It is certainly less humane.
And letting “the market heal itself” is simply an obscure and sanitized way of saying that some ore of our fellow citizens are about to lose their jobs.

over the past two years, nearly all the countries suffering from the current economic crisis have been busy rescuing with public money the profit-driven financial institutions that were responsible or co-responsible for the crisis in the first place (Stiglitz, 2010). Often created by central-bank fiat, these public resources had been long denied to, and are now not being utilised to fund, life-protecting and life-enhancing institutions, such as ambulance services, public hospitals, old-age pensions, university research, international aid, or primary schools (Halimi, 2008). Quite the opposite, public investments are being reduced across the board in order to secure the money-measured value of existing assets and keep treasury bonds attractive to institutional investors.

This is an excerpt from Your Money or Your Life - one of several papers by Giorgio Baruchello which have appeared recently in an Icelandic journal and which have introduced me not only to his clearly written critiques of the new financial capitalism which is attacking us in a cancerous way but to his generous summaries of two other big Philosophy names for me – John McMurtry (Canada) and Martha Nussbaum (US). Good and Bad Capitalism was an earlier paper which summarised Nussbaum’s 2010 book on the affect of the neo-liberal cancer on the body university – sweeping away as it has all remnants of humanities studies and requiring everything to be justified by its service to the world of commerce and profit-making.
McMurtry himself is an interesting character – who has an interesting and provocative autobiographical essay on his experience in universities here

The Nordic model

Conventional wisdom in financial centres characterizes the welfare state as wasteful and inefficient, penalizing good hard-working people in order to subsidize those that would rather live on state largesse than work for a living. Most recently, rising levels of government debt have given the bond markets and the rating agencies reason to attack a number of Eurozone countries. All this would seem to support the conclusion that the days of the welfare state are doomed and are themselves guilty of this predicament. The social democratic elected governments of Spain, Greece and Portugal have chosen to follow the US and UK neo-liberal recipe, thus abandoning their raison d´etre.
In this context, the curious anomaly of the Nordics poses a riddle. How can these countries prosper with their high levels of taxation, wages and public expenditures? Why do they have the highest overall employment rates among the OECD countries? Some believe it must have something to do with the Protestant work ethic or cultural, ethnic and religious homogeneity. Others even say luck, or perhaps the fact they are small countries. In our view, none of these answers get at the essence.
We contend that the Nordics are successful because they are not welfare states in the distorted connotation of the term. The Nordics are highly efficient, rational and democratic systems that are run in accordance with the words of Abraham Lincoln: of the people, by the people, for the people. Two questions tell whether a democracy is a real or a fake democracy. First: who really runs the country? Second: who benefits from how it is run?

For more see this Social Europe blog - one of the best for social democratic thoughts in this difficult time.

I missed the announcement of the EC rethink of Technical Assistance – following on The Arab Spring – and have the Open Europe blog to thank for drawing it to my attention. I will somment on it once I have had a proper chance to study it.

I don’t often write about novels I’m reading – but, as I’ve said before here, one of the nice things about living in this part of the world is the serendipity in the English-language books available in the increasing numbers of shops which offer such books (Sofia has about 6 such shops). Presumably they are remaindered – they are certainly no signs of the bestsellers of recent years. Indeed the prominent piles of Wordsworth Classics and Oxford University Press Classic Paperbacks offer the opposite temptation of reading the likes of Dostoevsky; Robert Louis Stevenson (eg his (extensive) travels), O’Henry or Virginia Wolf. And, every now and then, I come across authors new to me whose prose, characters and images shake me to the core. A few days ago I bought, on a hunch, a novel by an American (of Norwegian heritage) I had never heard of – Siri Hustvedt (just happens to be the wife of Paul Auster!). Its title is “What I loved” and I was so drawn to its language and characters that I devoured it in a day. Let an Amazon reviewer give a sense of its power -

What I Loved is an epic novel that covers 30 years of an artist's life, seen through the eyes of his best friend. The story is narrated by Leo Hertzberg, an art critic, as he tries to compile a book on the work of his closest friend Bill Weschler. The two friends and their families are entwined, with keys to each other's houses, their wives are friends, their boys play together. They live in tandem with each other, one family creating Art, the other observing. The book follows them for the majority of their adult lives, as Bill's artistic importance increases; they take lovers, people die, the world changes. 'What I Loved' is partly about Art as a method of representing the world. Tellingly, one of Leo's earlier books was called 'A Brief History of Seeing in Western Painting'. It also talks about memory and the way memory changes events, and about our personal perceptions of things compared to the actuality of them. It is a book of big ideas and Siri Hustvedt weaves them so skillfully into her narrative that they come back to you over the weeks and months after reading it. She never preaches, instead employs deft metaphors which haunt you long afterwards.
She comfortably uses Art as a way of demonstrating the changes in our society, Bill particularly becomes a mirror that is held up to our world; when another artist, Teddy Giles takes a piece of Bill's work and destroys it for his own art there is a very real sense of the new world swallowing the old. Within, as you would expect over such a time scale, there are some moments of extreme tragedy that still upset me if I think about them now, but there are also examples of life affirming warmth.
One of her real skills is an ability to describe visual Art so vividly, and to convey their meaning, not only within the references of the books themes, but within the wider context of our society. This is a vast story filled with characters that you grow to love. Knowingly clever, but not prohibitively so. And is a hugely accomplished piece of Art in its own right.

Personally I was touched with this section "Lucille's complaints were banal - the familiar stuff of joyless intimacies. I've always thought that loves thrives on a certain kind of distance, that it requires an awed separateness to continue. Without that necessary remove, the physical minutiae of the other person grows ugly in its magnification" Wow!

administrative evil, cultural confusions and complexity science

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In the last couple of days I’ve read about the brutal behaviour of the immigration officials processing some senior citizens on a cruiser ship which was docking for the second time up the US coastline. One couple apparently made a remark questioning this duplication – and, as revenge, the officials put the entire gaggle of old people through the administrative hoops for 7 hours – at some no little physical suffering, treating them as if they were terrorist suspects. And then look at thisaggro to a journalist by a policeman in NE Scotland who had been clearly taken his cue from Donald Trump’s minions; regarding anyone interviewing people critical of the commercial activities of the high and mighty as a terrorist - and therefore needing spoeadeagled on the bonnet of a car and having the videa camera wrested from him. What has happened to the Scottish democracy we used to be so proud of?
Officials who dance on our rights like this should be clapped immediately in the stocks – and pelted for a few hours with rotten fruit and vegetables! And again I say, this is the sort of stuff which should be the focus of public admin training!! One of the (many) unread books in my googlelibrary has the striking title Unmasking Administrative Evil and purports to show

how ordinary people, within their normal professional and administrative roles, can engage in acts of evil without being aware that they are doing anything wrong--and that this tendency toward administrative evil is deeply woven into the identity of public affairs as well as other fields and professions in public life.

Duncan Green is Head of Research of Oxfam and writes a great blog Very amusing was the table he gave recently showing not only what brits really mean by their understatements (eg that’s very interesting really means the exact opposite what complete nonsense!) but a third interpretation which is put on the first phrase by those from other countries. Very funny – and insightful!

The development community to which he belongs is doing interesting work on the implications of complexity theory for the professional field of development. The Aid on the Edge blog has put me in touch this week with what look to be 2 very important papers on the subject issued by the UK’s Overseas Development Institute – one this month, the other in 2008.
Simon Maxwell’s development blog celebrates Robert Chambers (whose work I drew on in the conclusion to my Varna paper) and has some reflections on the development field’s thinking.

Money and drugs

Disparate bits and pieces. Start with Bulgarian art and seascapes.
On my way to the Spartak swimming pool in the last few months, I have watched with interest and respect as an impressive derelict old building in South Park has been lovingly restored not – as we first thought – for yuppy residences but for an art gallery. And today all became clear – with about 10 massive scupltures adorning plinths around the building whose protective covering had been removed to reveal spanking glass walls on 2 sides. And plaques at the front door indicate that it is to be a Museum of Contemporary Art – funded by the unholy trio of Iceland, Leichtenstein and Norway! Must get an invitation to the official opening – and plead the cause for older art!!
And I hope to link forces later in the week with the curator of the great Sofia City Gallery – thanks to my friend Yassen who knows her very well and is arranging for us to meet to explore a possible joint project.

Bulgaria has a glossy English bi-monthly - Vagabond – which is always worth reading. A recent issue has a nice article on the aesthetic attractions of the Northern coastline of the Black Sea. The painting above is a Pater Boiadjiev I acquired in January - which currently ranks as the favourite in my Bulgarian collection. It is of this northern coastline

The Hungarian Spectrum blog continues its relentless and commendable exposure of the Orban government’s antics – this time with a vignette of one of its oligarch’s „thinking”

I’ve lashed out several times in recent blogs at the growing trend of commercialisation of public services; and was therefore pleased to see that the anguished LibDem Treasury Ministry in the UK Coalition (Vincent Cable) is promising an investigation into the implications for that model of the most recent farce which has arisen in that country – this time on the scandalous mess which private companies have made of residential homes for the elderly.
The Guardian also had an interview on the same subject with a great writer who now lives in a residential home which is not run for profit and is, in her late 80s, very vociferous about the need to keep the profit motive away from such places.

Think Tanks are perhaps one of the most visible signs of modernity. Initially squeaky clean – but, slowly, exposed as the sophisiticated propoganda machines most of them are. I was delighted to come across a great initiative of Colorado University which has for some time been conducting critical assessments of the Reports which come from educational think-tanks in the US . The reports can be accessed here.

Next, from Real Economics, one of the pithiest critiques of US policy and systems of the past few decades I have ever come across -

Most everything the US has done over the last thirty years turns out to have been an error. The after effects of the Cold War left America with no plan B of how to behave. Its politics were ill equipped to deal with the more modern problems of serious economic competition and commodity constraints on its life style – by which I mean higher priced oil. When faced with a challenge, the response was to huff and puff about American “exceptionalism” and to pout. Worse: American style economic doctrine, so deeply flawed as it was to turn out to be, was foisted on others.
The error, or course, was to revert to happy face politics. That was what Reagan sold the country on back in 1980. The happy face was plastered everywhere in order to avoid confrontation with fundamental issues. The idea, such as it was, being that free market magic would solve any ills. All we had to do was get government out of the way and things would work out.
What actually happened is that we used debt to paper over the fact that real growth was insufficient. We never paid for the wars we engaged in. We never paid to renew our infrastructure. We allowed our factories to decay. We cut taxes, but not costs. We pumped money into fantasy assets in any number of get rich quick schemes – the result being the succession of destructive bubbles we have lived through. Our policy leadership drifted into a zombie like self congratulatory dream world where it genuinely thought it had conquered history. Business cycle history that is. The magic worked we were all told. As recently as 2004 and 2005 top officials were slapping themselves on the back for having solved the problems of infinite growth.
Economics became a Disney like cartoon of itself. It became disconnected from the serious goal of solving problems for the benefit of all. It simply served to justify the aggrandizement of a few. It constructed utopias and imaginary worlds to explore. This was because it gave up on the more messy problems encountered here on earth. Prizes were awarded on the basis of magic and sleight of hand.
When your intellectuals leave the real world to inhabit a parallel universe and convince themselves that’s fine, no one can blame everyday folk for believing in the market magic fairy as well.
Someday someone will write a great satirical commentary on just how stupid all our clever people were. Right now all we can do is turn away in disgust. But how do you tell a whole cohort of highly educated and self satisfied people that they wasted their own and our time? Or that they led us into a dead end that will cost a generation of hard work to recover from?
Those leaders – should we even dignify them with that name any longer? – fell into a trance. They were beguiled by the great illusion that they could construct something solid on the shifting sands of finance. More importantly they totally ignored the corrosive effect of the debt being piled up in our private sector as households desperately sought to maintain a rising standard of living in the face of very mediocre income growth. These were great times if you were highly educated and well connected. Your income soared. Your wealth accumulated. For the rest? Not so much. The middle class festered in an ever increasingly vain effort to replicate the golden years of the immediate post-war era.
The disconnect between productivity and wages has come home to roost. It was severed by corporate incompetence and short sightedness: the pursuit of shareholder value came at the cost of undermining the demand that drives stock prices and real value over the longer term.
Now we learn the hard way.
Private sector debt is still far too high to allow much long term growth. It will have to be reduced. It is our Great Constraint. We did not cure our banking system. We are still infested with badly mismanaged banks lurching about the landscape capable destroying value and sinking our economy at any moment. We held back from punishing poor investment decisions by creditors. We bailed them out. So the debt remains instead of having been written off.
We persist in discussing problems that don’t exist – debt and inflation – rather than ones that do – unemployment.
The irony is that we lectured the Japanese on exactly these topics when they drifted off course decades ago. Take your medicine, we said. Close those banks. Slash you debt. Rebuild from a realistic, and smaller base. Clean up. Face reality. Did we? Are we?
Is there any hope we will?
And our leading Republican candidate for the presidency, Mitt Romney, today announces that we are “inches away from abandoning capitalism”.
Huh?
It was unfettered capitalism that drove this illusion. It was deregulation that allowed the banks to upend the economy. It was the unleashing of markets that drove bubble manias. It was capitalists, not workers, who gouged shareholders for enormous and undeserved bonuses. It was market driven finance that misallocated capital into real estate and away from factories. It was a belief in market magic that created the illusion we could borrow and not tax to pay our bills. Indeed it was that part of our leadership – that word again – who most profoundly sought to re-engineer society in the grand tradition of the neo-liberal thinkers like Hayek and his misguided or ill-informed followers, who led us furthest astray.
Institutions matter in actual economies. They matter mightily. Like the banks of our great rivers, they bind capitalism into a channel where we can extract value from it without falling prey to its anti-social extremism. We get the work. We get the energy. But we avoid most of the mayhem. When those institutions are kicked away, when the river banks are breached, the system wobbles off course. Strange and very nasty things happen. Ordinary people drown. In particular, democratic society is torn apart. Political cliques dominate over the majority. The agenda narrows to serve a few. Unrest builds. Until …
With our elite now indulging in a self-referential discussion about problems that exist only within its small and exclusive world. With the recovery clearly showing signs of slowing down. With debt burdens forcing household retrenchment. And with unsafe banking ready to undermine everything. I have to ask

And finally, in the most obvious area where policy analysis fails utterly to penetrate – drug policy - comes a very important critical report from a Global Commission.
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