KAUSHIK BASU: I will just tell you about the program this morning. We will have three speakers. I will introduce the speakers when it comes up. And immediately after I finish-- and I'll take no more than two, three minutes-- Bob Hockett, my colleague, will tell you a little bit about CRADLE.
With that, let me tell you a little bit about Bob and my-- what is it that we're trying. Because this conference is effectively the inaugural conference for CRADLE. CRADLE stands for Cornell Research Academy of Development Law and Economics.
Before I get into this, I want to tell you that the interest in law and economics is an overlapping interest of Bob and mine which goes long back. And we've lectured to each other's classes a little bit, spend a lot of time talking about it.
That at some stage after I came back from seven years of being away, we thought that it would be wonderful to set up an organization with some things in the law, economics, and even other disciplines-- other students, faculty together. Because there is a very, very rich area of us.
For me personally, since I worked a lot in developing countries and in development, it is a bit of a shuddering feeling to see how the law is crafted completely unmindful of the larger fallout on human welfare and development. And bringing their disciplines together would be useful. Bob, I know, works a lot in finance and as the same kind of feeling that the two disciplines together could play a role.
CRADLE has taken off. We had a couple of seminars, talks-- just a single speaker last semester. But this, for us, is really the start of CRADLE. So there's very little to CRADLE right now, apart from the acronym that we are very proud of. CRADLE sounds lovely, though it is causing a locational problem because some people are completely bewildered and ask me why do you call it an academy. The real reason is it's spelled with A.
It is any unit, any group that is meant to interact over law and economics and other disciplines. That's the idea.
So let me tell you the rules of the game for the morning. I've got one handicap which is affecting me, I shall tell you. I am in that-- hopefully-- the only time in life you go through a phase where you've done cataract surgery on one side but yet to do the other eye. So the discrepancy is troubling me a little bit. Should not worry you, because it won't change the content of what I say.
But you may have to wait a little extra to get my attention.
So what we will do is Celestin Monga and Joseph Zeira, who will speak for 25 minutes to half an hour for their time slots. I was not keeping time for Q&A on that. But if they finish early, we may be able to skip in one or two questions on that.
Immediately after that, we move to Joe Stieglitz's talk. And that, we have told Joe, is with a lot of time for interaction. Because with Celestin and with Joseph, we will when we break-- after this opening conference we've got a day and a half of smaller group, more intense, more nerdy sessions. So we've kept time for greater discussion of what they present during those sessions.
But Joe Stiglitz will be here just for the morning session. So you will be able to ask questions freely. And after that hopefully he'll linger on for a while during the reception, which will be at the back over there.
So even before I actually introduce the speakers, I should just say that when we got organizing this conference, Bob and I, we were very interested, excited about the intellectual content of what we could achieve out of this. We keep thinking that we go on to produce a book out of this conference.
But we were very worried-- I was worried-- because this is the first I'm living in New York, never organized anything in New York. And really I have to give a special word of thanks to Heike Michelsen, barring whose-- I don't even see her here. Yeah, there she is, yeah.
--barring whose attention to detail this really wouldn't have been possible.
Also very important for me because I was interacting a lot with Barry [? Duffinger ?] and Jonathan Miller-- where are you? Yes, OK. It's my vision that is causing a problem. So thank you very much. We worked a lot. Every time I was [INAUDIBLE] we were meeting up and spending time. So apart from Bob and me, part of the idea of doing this-- without this help of these three people it wouldn't have been possible. Thank you very much.
Let the move straight away to the speakers. And I'm going to begin with Celestin Monger. Celestin is the chief economist and vice president of African Development Bank. He's one of those persons who has traveled a great distance to be here. But it so happened that I know Celestin very, very well because we worked very closely during my time at the World Bank. And it was really just a pleasure.
Celestin was already there when I came into the Bank. And I can tell you that, first of all, he has a very powerful career, not being allowed to go back to his own country because of political activism. And he came in through various channels and he was at the World Bank.
But he brings in a great amount of scholarship and the best writing skills I've seen in anyone. So during my period, all the various documents that are coming out and people will say they are well-reviewed, it's only one person who gets the credit for that. It was Celestin.
Celestin then moved on to big things, to the UN first of all, and subsequently now to the continent that everyone is looking at, working as chief economist of Africa Development Bank. It's really a pleasure, because he's a friend apart from an intellectual partner. And we've spent a lot of time talking on a variety of topics. It's wonderful that you're here, Celestin. The floor is--
Actually before I called Celestin-- I'm getting it wrong. I'm not going to introduce but I'm going to just have Bob Hockett tell you a little bit about the conceptualization of CRADLE. Then we will move on to you and then to Joseph. So, Bob, the floor is yours.
ROBERT HOCKETT: Great. So I'll be really quick. Thanks very much for coming. This is a great honor and a great joy to have all of you here for this inaugural event, at least in New York City, for CRADLE.
We've had a couple of smaller scale inaugural events over on the Ithaca side. But we definitely are going to be located here in New York, as well as in Ithaca. Of course the biggest and best of the inaugural events is this one right here.
So just a couple really quick points about what CRADLE is, what the original conception was, what the ultimate ambitions are, partly because we're hoping that all of you might be involved with CRADLE in other ways going forward. So background-wise, it all starts as follows.
When I first got over to Cornell, I had previously been in a previous life a mathematical logical and economist-- at least that was my educational background. And I got into the law with some misgivings and got into finance with some misgivings. And for that very reason, I was overjoyed on arriving at Cornell to find that there was an economist there who had a rather eclectic set of interests that rather matched my own.
I had heard much about this fellow, Kaushik Basu, so I thought, I've got to meet him as soon as I arrive. I did reach out to him right away. And he of course, as he does-- graciously fellow that he is-- he invited me to his office at once And When I first walked in, there on one wall was a photograph of Kurt Godel. And there on another wall was an image of Frida Kahlo. And I thought, this is definitely my kind of economist. The only other one I knew was my old mentor, John Roemer, who I'd worked with over at Yale even in my post-economics life, who of course is here today.
In any event, Kaushik and I began working together a great deal on various academic projects, talking to one another's classrooms, collaborating and brainstorming alike on various ideas. In those early years-- that I was at Cornell at least-- fairly shortly thereafter the financial crash occurred in finance. It suddenly became quite salient in a way that it hadn't been for quite some time.
And so shortly after the crash two things happened, one to each of us. Kaushik was called off to India to be chief economist for the government of India. And I myself began to moonlight over at the New York Fed. So both of us now were finding ourselves doing a lot more practical work that complemented our academic work. And we were noticing that there was a certain mutual enrichment going on, I suppose you could say, in connection with our academic work on the one hand and our more practical work on the other.
After a few years in the government of India, Kaushik was called to become chief economist at the World Bank in DC. And lo and behold, at exactly the same time I took my first sabbatical and was working over at the IMF, right across the street. So the two of us continued our collaboration-- it was partly practical, partly theoretical-- over in Washington back in 2012, 2013, thereabouts.
So then when the time came for both of us to return to full-time academic work back at Cornell, we thought, well, we're spoiled. We rather enjoyed the regular interaction that we've had with policymakers, with NGO folk, and even with practitioners of various kinds in various disciplines that related to what we did.
In fact, I had discovered the existence of a class of people-- this class I'd been completely non-cognizant of before, say, 2008 or 2009-- a class people I called progressive investment bankers. And I've been very much involved with those folk ever since and so has Kaushik.
So when be got back to Cornell, we thought, well, wouldn't it be great if we could put together some sort of an institute that combines the kind of work that we've been doing in the other institutions, the extra-academic institutions that we've been working in-- with the work that we continue to do at our academic institution.
So the thought was then to create an institute that would basically bridge divides along two distinct dimensions. One dimension you can think of as the curricular dimension. So we would bridge the disciplines of law and economics, but also finance-- so we would say law, economics, and finance. Because, believe it or not-- and many people don't realize it, but-- economics and finance are in many ways different things.
The other dimension along which we thought we'd bridge divides was the vocational. So we thought we would bring together academics on the one hand, government officials on another hand, and then various kinds of practitioner-- whether we'd be talking about legal practitioners, financiers, NGO folk, or what have you-- on the other hand.
So CRADLE is ultimately aimed at doing that, at bridging these divides or bringing people together from nominally distinct locations along at least two dimensions-- you have the curriculum on the one hand and the vocational on the other. The long-term plan, then, is to have multiple conferences of this sort but also to do a great deal more. We'll be putting out books, we'll be putting out individual monograms, pamphlets, white papers, and the like.
And we're even now thinking about putting out or starting up a publication, a regular publication that would go out on a periodic basis. But more on that to come. But that's just a brief preview of what's to come. And this is really, again, very much the front end. So thanks so much again for being part of it, and for launching us onto the world.
KAUSHIK BASU: I've introduced Celestin already. Celestin, we will do the following. You've got exactly half an hour. It's up to you if you want to leave a little bit of time for Q&A. But you can also swallow up the half an hour if you want.
CELESTIN MONGA: I'm extremely honored to be here, the long flight from Abidjan, and to see some really familiar faces. I don't have much to say.
Because when Kaushik invited me to participate in this, he made it clear-- in his usual elegant language-- that I have to be shot. He said something like 15 minutes or so, which in Kaushik jargon means really less than that. He was trying to let me know that we are really here to listen to Joe Stiglitz. So I really didn't prepare.
I have a few things that I want to say, hopefully about 15 minutes or perhaps even less. And then we'll see if we can have a conversation.
The title of my paper which I presented to Kaushik, The Economy of Reputation. He said, well, I'm puzzled with your title. I say, well, that's good. Well, let's see if others are puzzled.
But the point that I will try to make is quite simple. I just want to look at some of the recent global political developments and what it means for Africa through the lens of economics and the law, basically. And I must say that I come to a conclusion, which is a bit cynical but not pessimistic.
I just think that some of the things we've observed around the world in recent years-- very big, momentous events-- have really pushed us to rethink what is the law, what laws are, what they mean, what makes them legitimate, and what is the relationship between law and economics in the world that we are living in.
So I really think that the idea of launching CRADLE, which is really a beautiful acronym, it's most welcome, not just because I see the need for it, but because-- I'm no expert, but from what I know about the literature on law and economics, it's still dominated by micro-economic issues.
And I think that there is a need to really expand the agenda to touch upon the law and macroeconomics, the law and governance-- global governance-- the law and global political economy, things like that. So I think there is really a huge and exciting research agenda ahead for CRADLE building on the body of work that already exist in law and economics.
So my focus will be today really on economic governance, and changes in the global political arena, and how an African leader could look at some of these changes. Now, the subtitle that I gave Kaushik sums up one of the key messages that I have, which is I think we live in a post-democratic world. Now this may imply that we were living previously in a democratic world. I'm not sure about that. And I'll say why I make this comment.
Law, always it's one of these topics where there is broad intellectual consensus on their importance. You go back throughout intellectual history, people will disagree on almost everything, agree on the importance of the law.
You go back you read Plato, his dialogues. The longest dialogue that Plato had, it's called Laws. And it discusses the ethics of laws, or the ethics of laws in government, the political philosophy of laws. And you can even see in there some of the early discussions of the economics of law. And everybody almost everywhere, even people who in their behavior every day have a lot of disregard for the law, still say that they revere the law.
Then the question is, well, then why is it that the perceived virtues of the laws are not fully translated into a perceived belief that societies where laws are respected are also doing well economically, not just in terms of average income per capita but in terms of welfare, collective welfare, social peace.
Joseph Zeira will talk about conflict in the Middle East. I can't wait to hear what he has to say about that.
Israel is certainly, in my view, a highly successful economic study. Yet we have all these big questions. In a country that reveres laws, we still have uneasy economic observations to make there. But it's obviously not just the case of Israel.
We can look at Brexit in the UK. From somebody who is from Africa, it's fascinating the discussion on Brexit. While it's a country that probably was the earliest in modern age to implement democracy, they decided to put an issue to a referendum, the majority voted for Brexit, and then everybody is up in arms. What's going on? To speak like President Donald Trump, what is going on?
Why would anybody challenge Brexit? It's a democratic result. Every rule [INAUDIBLE] it follows.
Now I could provoke you and make the case for Catalonia, what's going on in Catalonia now. All kinds of legal experts disagree on what to do about Catalonia and Spain. But why should legal experts disagree on the law if it's so clear? And what are the implications of a concept, the law, which is so easily debated. and sometimes really even rejected, including in countries, again, where supposedly democracy is taking place?
What happened the other day in Hungary is interesting. Prime Minister Viktor Orban, whatever you think of it, he was elected. Nobody disputes-- now, some people dispute the fact that the position didn't get access to the media and so and so. But by and large, even the person who led the opposition recognized his victory. So it's a democratic outcome. Why should anybody question that and what are the consequences of the questioning for economics?
It's not just Brexit or Catalonia. I can talk about the Philippines, one of my favorite interesting examples. President Rodrigo Duterte was elected overwhelmingly less than two years ago. And he said everything that he would do before being elected. And the people of the Philippines in their great wisdom-- supposedly-- elected him. And he's doing what he said he would do. And then everybody's up in arms.
Where is the law? What is democracy? And what does that mean for economics?
Macron-- Emmanuel Macron, president of France-- his situation is slightly more intriguing because in the French system you get elected president by going through two rounds. In the first round, he got 24% of the vote. But only 78% of the electorate went to vote that day.
So if you compute the numbers, actually less than 19% of the French people who went to vote voted for him. And then for the second round, he had as his opponent Marion Le Pen, far right wing leader. And of course, the entire political leadership in France decided that everybody should vote Macron.
But President Macron has said everything he wanted to do during the campaign, all the reforms that he wanted to do. He laid them out. He wanted to change labor laws and everything. The French people voted for him with the system they have. And now they're up in arms on the streets.
I almost missed this trip because the Air France flight from Abidjan was canceled. And the [INAUDIBLE] fly yesterday from Paris we had it really last minute. So, as a Cameroonian-- who doesn't have the luxury of having that kind of democratic system in place in my country-- I was wondering why would people oppose somebody who has been elected playing by the rules and saying in advance everything he would do. And what is the significance of this for economics and for the reforms, that in the case of President Macron want to do in France?
I could say the same thing here. Joe Stiglitz is not here, but a year ago he had me for breakfast. And we were discussing the election of President Trump. You can imagine how Joe felt about that.
I tole Joe, well, I know you disagree with everything President Trump stands for. But he said as a candidate every single thing he would do. Some of them were seen to be completely outrageous. Still, wise American people went out and voted for him. He played by the rules. His opponents to this day still believe that his election was totally legitimate. What gives you the right to oppose him? And I said to Joe to provoke him, well, as a good American patriot, you should root for President Trump and make sure that he succeeds.
And Joe looks at me almost trembling. He said, I want him to fail as soon as possible so that we can get rid of him.
But again, as a Cameroonian, even though, of course, I disagree with 99% of what President Trump stands for, I found that bizarre. Because I think that the system worked. And so the problem may not be President Trump, but maybe the law, or the rules, or the Constitution, which apparently is a dead document, something that was decided a couple of hundred years ago or something like that. And nobody can touch it basically.
My favorite philosopher Emil Cioran from Romania used to say that tradition, constitutions are like giving rights to dead people to vote. Why wouldn't you be allowed to change your constitution?
Now African dictators would love that idea, would want to change the Constitution every week to suit whatever needs they have. Well, if I have them majority support to change the Constitution every week, that's totally democratic. That's giving legitimacy to the legal systems that codify the way we work.
But whether you go one way or the other, the question is also what does this mean for economics, for economic governance. I can push forward and discuss the issue of even presidents who have been elected who did great things by all accounts in terms of economics. Well, some of them are put in jail.
I'm talking here about President Lula in Brazil. Even those who hate him recognize that 28 million people-- 28 million people minimum; some estimates go as far as 40 million people-- were lifted out of poverty in Brazil under Lula. The guy is no longer president.
He's actually the most popular president. When he left office after his second term, his approval ratings were 80%. He's in jail today. He happened also to have been leading in polls for this year's election. These two things were [INAUDIBLE].
But in any case, apparently he's been found guilty of corruption. That may be true. I don't know.
But all of these questions-- I think about Brazil, which is one of I hope the most successful stories, economic stories, that we have in developing countries. And I worry. I wonder what does this mean. I'm not too worried about South Korea where President Park Geun-hye just got sentenced to 20-some years in prison, even though during her tenure South Korea did very well also in terms of economics.
So all these questions, I think, are puzzling, interesting. And certainly for somebody from Africa they raise a lot of question marks.
Now let me sum up by saying what I would say to an African dictator if I were working as his advisor. If I were the advisor of an African dictator, and looking at all this, and writing to him, and advising him on law and economics-- well, him or her actually-- I would say, well, what we've observed in recent years simply shows that the law is actually a very elusive concept. And it doesn't matter whether you're in a high-income country or not.
You see, you read what former president of France Nicolas Sarkozy has been saying lately. It would be mind-boggling to read what the former president of France, Nicolas Sarkozy, is saying about France and the law in France today. You wouldn't believe that this is somebody who was present. I don't know whether he's right or wrong. But it's extremely shocking for somebody like me who doesn't have the luxury of living in a so-called democratic country.
So if I had to advise an African dictator who is trying to stay in power and so on, I would say, well, it appears really that it's all about your reputation, and the reputation of your country, and the economic power that you can muster to establish good friendships in high places.
And I say this because, as an admirer to former President Barack Obama, I was completely shocked when I saw him go to Saudi Arabia and bow to the King of Saudi Arabia, which at the time was doing probably worse things than many dictators in Africa. And then he would turn around, visit Africa, and lecture African leaders on governance, on economic governance and political governance.
So I would say to my boss the dictator just make sure that whatever you do, you'll get your economy right, you'll get the finance to make yourself indispensable, so that the most powerful people on this planet will not criticize you but bow to you.
But beyond the joke, I really think that the issue of laws and how they approach in today's world, I'm not sure they were that different. I just think that with technological development we simply know more today than what we used to know.
So let me stop here and perhaps we can have a few minutes for a couple of questions.
KAUSHIK BASU: 5, 6 minutes we have for a few questions.
AUDIENCE: A message which I take from your very good [INAUDIBLE] remarks-- and you may not agree with this-- is that democracy in an ideal form really means one person, one vote and not one dollar, one vote. And what we see happening all over the world, including in many of countries that you mentioned, is that the rules of the game have been changed increasingly in the direction of one dollar a vote rather than one person a vote.
And in a way, this has corrupted some of the very beneficial outcomes of an ideal democratic system. And to me this raises a question of the extent to which it might be possible to go back to a form of democracy that would be much more responsive to the various power groups in a really fair way.
CELESTIN MONGA: Should I respond or take another question?
KAUSHIK BASU: It's up to you. [INAUDIBLE] another hand.
CELESTIN MONGA: So, well certainly I would agree with this. But I think that your statement is still a bit too optimistic in the sense that even in places where you don't have a lot of money into politics you still have the electorate picking leaders that they turn six months later not to agree with for all kinds of reasons. So I'm less optimistic than you are about the ideal of democracy.
Everybody is talking about fake news these days, and Russia is hacking into this, doing that. We had fake news before Russia. The entire political campaign in the US is buying television ads on TV and putting fake news on your opponent. We don't need Russia to produce fake news. Maybe it's more embarrassing if it's Russia.
But I visit Arab countries and they laugh at it. They say, well, when President George W Bush was president he created an entire department in the foreign ministry under the Secretary of State officially designed to influence the choice of political leaders in Arab countries-- not in Arab countries but in the world. So that's also interference. And they didn't hide it.
So I'm less optimistic than you are about the ideal of democracy the way it's been codified and implemented in the West for many hundreds of years.
AUDIENCE: No, but I don't think that we could ever come back to an ideal form of democracy. But what I'm wondering about is to what extent can legal scholars together with economists come up with new rules of the game that would make the system fairer and more responsive.
CELESTIN MONGA: Well, that's a challenge for CRADLE certainly.
I can tell you that in Europe-- in France, for instance, where elections are by and large paid for by taxpayers, because they try to do that to avoid the notion that you need to have a billion dollars in your bank account to run for president. So they made sure that it's paid for mainly by taxpayers. Still, they have outcomes where you have 20-some percent of people who don't bother to go to vote. And then they're go in the street six months later to block and oppose everything that the elected person is trying to do.
KAUSHIK BASU: Another question. Yes.
AUDIENCE: Thank you. I also want to ask you if you can shed some light on entrepreneurship and whether, if we're talking about new rules to the game-- I know a few years ago the UN passed a resolution to try to alleviate poverty by using entrepreneurship methods. There's a lot of international institutions that invest around the world in social entrepreneurship and entrepreneurial business. Has there been any movement to change the laws? Law is definitely only one of the main factors that contributes to this to make it easier for businesses to incorporate. If you can just tell us a little bit of what's going on.
CELESTIN MONGA: Well, it's a big question. Let me just say a couple of things quickly. Certainly I believe that entrepreneurship is a way of empowering people and giving them the opportunities to have some control over their lives and lift themselves out of poverty.
Now we live in a global world where most of the economy is actually being produced in global value chains. It's startling. I saw some recent numbers from WTO and UNIDO, and I was really puzzled. I didn't realize myself that most of the goods and services that we currently consume-- buy and consume-- are produced in global value chains. And then you look at the power structure in this global value chain and you see that they are still dominated by big firms with good connections.
So yes, we could help and support entrepreneurship if we find ways to link up small or medium-size enterprises into the global value chains, because that's currently where the action is. And yes, if we can set up reforms, and rules, and contractual arrangements with foreign investors in each country to make sure through a system of quotas-- or whatever it is-- that a share of the market is devoted to small firms headed by women or whatever it is, I'm sure that will help. But politically it's not easy.
AUDIENCE: Thank you.
KAUSHIK BASU: Well, we'll take two more questions then. Let's take both these questions and then-- is that all right to take two questions?
CELESTIN MONGA: Zero questions is fine for me.
KAUSHIK BASU: No, two together.
AUDIENCE: So I'm from Kenya. And I'm sure you're familiar with a lot of hype about new types of economic models in Africa that privilege economic development over what we typically consider tenets of liberal democracy. And I was wondering generally what are your thoughts about the potential for those kinds of models. And I'm thinking there's been a lot said about Rwanda and increasingly Ethiopia-- although politically they've had a lot of issues for the past two or three years. But what do you think about the potential for those models to create inclusive and sustainable economic growth and also long-term political stability?
KAUSHIK BASU: It's a big question, but let's-- [INAUDIBLE]. And we'll make this the last question.
AUDIENCE: Thank you very much for your remarks. I just wanted to say-- and I think this is one of the things that we'll be talking about today and I hope that will become part of the agenda for CRADLE-- separating out our ideas about democracy, and rule of law, and legal order, and what it takes to build economies.
And also I think really critically when we're thinking about democracy-- not reducing democracy to elections. I think that's part of where we need to move from. We were talking about a much more complex system than that.
I think it's fantastic that people who democratically elect a leader continue to say, not that, I'm not participating in that, I'm not doing that. But I think it's a thin notion of democracy and the rule of law if we focus only on elections. They are critical-- democracy is critical-- but it's not the be all and the end all. And we need to be thinking about all that as well. Thanks.
CELESTIN MONGA: Well, think you. Welcome, Joe. I just talked about you. And I revealed your admiration for President Trump.
Well, on the Kenya question, the African leaders are really feeling the pressure because of the demographics, the fact that there are so many young people on the streets, most of them with very little skills, and obviously creating all kinds of problem. Not to mention climate change, which is also erasing possibilities and opportunities in many rural areas. And bad policies. So there's no longer a good or a bad model. The good one is the one that allows people to get jobs.
You mention Rwanda. Well, Rwanda is trying to emulate what is being done in Ethiopia. And Ethiopia, as you know, have been copying some of the recipes from Deng Xiaoping.
When Deng Xiaoping became head of China in '78-'79, he was 74 years old. He was coming from jail where Chairman Mao, his rival, had put him there. And he inherited a country of 1 billion people-- close to-- at the time with no natural resource of any sort except the people of China. Zero infrastructure-- I checked that, really. And I can give you numbers for railway, for instance, in the entire country of China in '79-- less than 2,000 kilometers. That's less than what Mozambique or Zimbabwe has today.
Little human capital. And I can say this with confidence, because Chairman Mao had shut down all colleges and universities in China for 10 years during the so-called "cultural revolution." So no physical infrastructure, no human capital, no natural resources, a terrible reputation as a country-- a communist place-- and so on.
And he had one billion hungry and angry people. What do I do? And then he want to see Lee Kuan Yew in Singapore, who said well, you need to create a few quick wins. Whatever you do, find a couple of places well-located near ports where you can create a few thousand jobs so that everybody who hates you has to pause.
And that's what he did. He took the playbook of many people before him. He probably didn't read Alfred Marshall or even Adam Smith, but he understood the notion of industrial districts, special economic zones.
He sent people to Ireland in '58, created near the airport in Dublin a big special economic zone that could return jobs and contributed to really boost the Irish economy. He sent people there, all over the place. He said, bring me the best ideas, how do I do this in a year.
And he picked Shenzhen, which was a small sleepy village of fishermen in southeastern China. And then he built a special economic zone there.
But he did what many people who are ecstatic about special economic zones [INAUDIBLE] didn't do-- he forced every single investor who came in to also bring the know-how to transfer and know-how to Chinese. There were contracts whereby a number of local people had to be trained by a year, by two, things like that. He also connected domestic firms to this special economic zone. And then they allowed him to take off.
So it's just pragmatism. It's not the Chinese model. It's probably also what the Italians did in the '30s with industrial [INAUDIBLE].
On your last small question but big one-- small because I don't have time to really address it-- on democracy versus the rule of law, well, I'm sure the president of China would love to listen to you on this because that's exactly what they say. I remember being a student in Boston when president-- then-president Jiang Zemin visited and gave a lecture.
And somebody told him, well, Mr. President, President Bill Clinton of the US has just accused you of not having a democratic system even if you have some rule of law. And President Jiang Zemin said, well, China has been a country with a recorded history as a state for 5,000 years. The US is a small country that was created a couple of centuries ago. Why should I listen to what they have to say?
So, yes, I agree with you on the fundamental distinction between the rule of law and democracy. But I would go even further to say even that rule of law, and its understanding, and its implementation is subject to change to money, to power, and to economics. Thank you.
KAUSHIK BASU: Thank you very much.
So let me straightaway move on to Professor Joseph Zeira. He's a chaired professor at the Hebrew University of Jerusalem. I have to say I first heard of his work in Calcutta when I was concerned about intergenerational transmission of inequality and poverty, that if you're parents your children will be poor, grandchildren will be poor. Having that discussion someone in Calcutta told me that the best paper on this subject that you can read is a paper by Galor and Zeira. So for me, the introduction to Joseph was actually to his paper.
Subsequently we have been friends with lots of common interests in development economics. And apart from being a very, very distinguished economist, he's also an activist, a very powerful voice of conscience in general. So it's wonderful to have my friend and distinguished economist to speak on the conflict in the Middle East and also the economy.
He's just got a book out on the Israeli economy, which is linguistically something that I will not be able to read. But he's [INAUDIBLE]. So thank you very much, Joseph. The floor is yours.
JOSEPH ZEIRA: Thank you again. And my talk today will be about economics, democracy, and nation-states in the Middle East.
I'm from the Hebrew University of Jerusalem, currently teaching the Israeli economy in Northwestern University. But most importantly, the paper is based on the work of the [? X Group. ?] The [? X Group ?] is a unique group of Israelis, Palestinians, and internationals which is working since the days of the Second Intifada-- since 2002-2003-- on the economic aspects of some solutions to the Israeli-Palestinian conflict.
So we have started last year to think about how the conflict between the Israelis and Palestinians is related to the overall chaotic situations in the Middle East in the last 10 years. So my talk will be mostly about the MENA-- about the Middle East and North Africa. But at the end I'll connect it a little bit to our own small country.
So I will start with a brief description that in the last 10 years in many Arab countries we have seen a struggle toward democracy. And somehow, this struggle-- except for Tunisia maybe-- didn't lead to good things, but to rather dismal situations.
The struggle for democracy in Egypt, for example, led to a re-taking-over of power by the military to a large extent. And in some other countries-- like Libya, Syria, and Yemen, and to some extent even Iraq-- it led to very severe civil wars and wars that are really deadly and create a lot of human loss, and migration, and phenomena that are really striking.
So we're thinking about how can we explain that. How can we account for that.
Now of course, we are mainly economists. But we also participated with people who are experts on the Middle East, and people who are experts in political thinking, and so on. And we have started to come with some ideas. These are still preliminary ideas, and I want you to view them as that. This is not a full complete paper.
So definitely there is some significant economic background to the eruption of the Arab Spring. And that is the dismal economic situation in MENA countries.
Now, this graph shows you the economic growth of income per capita on a comparable basis-- economists know the term PPP-- but all taken in logarithms. So what it means, for those who forgot logarithms from high school time-- it means that the slope of the curve really gives you an idea about the rate of growth.
So we have here Israel and we have the Gulf countries. And the red line is Turkey and Iran, which are not exactly Arab-- they're Muslim but not Arab. And the Middle Eastern countries. Basically Middle East is what we call in Arabic the Mashriq, which means the eastern side of the Arab world. And North Africa from Egypt to the west. So this is the Maghreb-- this is the Western side of the Arab world.
And you can see that Israel was leading economic growth certainly until '73. It was catching up very fast. After '73 it grows slowly, more slowly. But still don't be confused-- this is a rate of growth that is equal to the rate of growth of the US. So we're not doing very badly.
So this can be a comparison to the other countries. So we can see that the Gulf countries fared the worst, because during the '70s most of their income was from their oil production. And after that, there was a severe collapse.
By the way, I didn't include Iraq in the Middle East. Because in Iraq during the Iraq/Iran period, there was a huge decline of output, and I wanted to keep it out. But still, you can see a dismal picture, that from 1980 until today there was almost no economic growth. It's a terrible situation.
There is a little bit better economic growth in North Africa. But still, the distance between Israel and North Africa didn't really close but kept intact.
So one thing was less economic growth, less development. The other problem was jobs for educated people. During the last 20 years, there was an educational revolution almost in all the Arab countries. A lot of kids went to college and acquired education. Here are some few numbers.
So the average years of schooling in Egypt, for example, went up from 2.6 years in 1980 to 7.2 in 2010. Just as a comparison, Italy has 9 years of schooling at the time. So Egypt became not so very far away from Italy. And if you think about the generational structure, then it was almost the same.
Libya went up from 3.3 to 8. Tunisia went from 3.3 to 7.6. And Syria went up from 3.4 to 6.7. So we're talking here about these are the main countries where the problem erupts.
Now all these people went to college, went to university, did the right things, but didn't get jobs. And you can see if we measured-- maybe in the afternoon where we have more time for discussion I can show you graphs that show that the human capital-- just the level of education was much higher than the rate of growth, which means that they were over-educated in a sense. And the problem of many young people who couldn't find jobs was devastating.
Further than that, to that we have to add the effect of the neoliberal policies instituted by the governments in the Middle East. When the governments institute neoliberal policies in Europe or in the US, it's a problem, but it affects mostly the distribution of income. In the Arab countries-- and maybe in some southern European countries-- it created huge unemployment of the young, of the educated young.
Because for them, the public sector was the main employer. And if you reduce the size of the public sector, it means that you reduce the option, the possibility of finding a job for educated people. So that was another reason for the development of the Arab Spring.
But the main question that puzzled us is why the Arab Spring that sounds like such a good thing potentially-- fighting for democracy, demonstrating for democracy-- why did it develop to terrible conflicts, to terrible civil wars? So one common explanation is the Sunni-Shiite rift, the gap between the Sunnis and the Shiites that also overlaps with some regional conflict between Saudi Arabia-- the leader of the Sunnis-- and Iran, which is kind of the leader for the Shiites.
But when we thought more and more about it, we realized that that is not the main explanation. And if at all, it's mostly because the rift is also related to deep economic gaps and ethnic gaps within each country itself.
So we know, for example, that there's some minority of Shiites in Lebanon, which is now defended and protected by the Hezbollah. We know, for example, that there is a Shiite-- not-so-little-- minority in Saudi Arabia. That is one of the reasons that Saudi Arabia is so adamant against Iran, and so on, and so on.
But all these things do not really reflect a serious religious conflict. By the way, I don't know if many of you know, but in most Arab countries Sunnis and Shiites go to the same mosques and pray together. Only in some specific places there is more separation.
So another thing we've been thinking about was maybe it was intervention by the West. We Westerners do a lot of harm to the world. That's true, but sometimes it's overrated.
So it's true that some interventions by the West were harmful-- especially in Iraq, for example. And there was a lot of intervention in Syria, some of it by proxy through Saudi Arabia. There was a lot of Western intervention in Libya. But still, the point is that a lot of these conflicts erupted even without the intervention or the direct intervention of force.
So I'm not denying that it had in many places and exacerbating effect. But the question is what was the cause of it.
And in a sense, the more we've been thinking about it, we're led to understand that the reason was 100 years ago. Just to remind you all, 1917, Britain conquers the Middle East. And the British and the French signed the Sykes- agreement where they carve the countries in the Middle East to separate countries. And these borders do not really fit the ethnic diversity of the region.
Now the ethnic diversity was not so important during the Ottoman Empire for various reasons. But suddenly when their people have to be in the same country and they have somehow to share the power, things become more complicated. And I'm sure that this problem exists in other countries that were ruled by the colonial powers. But I'm not an expert on Africa, so I'm saying nothing about that. But I know a little bit more about the Middle East.
So what happens is that as long as there were dictatorships-- and probably you have to think why there were dictatorships, because it's not just because people are bad or evil-- but as long as there were dictatorships they could manage somehow the coexistence of ethnic groups, and somehow go and make some power-sharing arrangements that would give some jobs to this group and some other jobs to that group, and take care there will be some economic and political balance between the different groups.
Now when you break this dictatorial regime and you rush toward democracy, hell breaks loose. Because in democracy, it means that there will be some election and some minority or some ethnic group will form a coalition and will rule the country. What will the others do? They will suffer tremendous losses. So the situation was that, as terrible as it sounds, the prospects of a democratic transition caused, to a large extent, a lot of these things.
So what does it mean? It means that we have to give up on democracy? I don't think so.
But it means that we have to adopt it, to adjust it to a situation of countries, nation-states that comprise of many different minorities and many different ethnic groups. And there needs to be an agreement between these groups.
Now some of these events happen also in Western countries. Think about Northern Ireland, for example. So democracy couldn't work because then either the Catholics would rule or the Protestants rule. They had to have an agreement between the two ethnic groups.
And in the same way, in a sense what we need in these countries-- well, there are two basic solutions. One solution is to split every country into many, many states. And that is probably not a practical thing to do, because it will break the fragile equilibrium that we had for 100 years.
And during this 100 years, they developed some national feelings, and national belonging, and national elements in these countries. So the Syrians are now more Syrians than other. things. They are more Syrians than Shiites, or more Syrians than Alawites, or more Syrians than Christians, and so on. But still, we have to reach some sharing agreements between the ethnic groups.
Now the first example that comes to mind is, of course, Lebanon, because Lebanon has in such an agreement. OK, you come and say that the Lebanon agreement collapsed in the '70s. And that's true. Why it collapsed? Because they didn't update it. The demography changed and they didn't update their agreement to the change in demography.
But the civil war didn't solve the problem. Only at the end of the civil war when they realized that they have to go into renewed negotiations and got to a different power-sharing agreement, they survived. And amazingly, Lebanon survived the Arab Spring. And it's something important to remember.
So we need such agreement in almost every country. Because if you have, as you say, pure democracy, then one group can get control. And then it will not only have political control, but-- what's more important-- it will have economic control. It will decide what to do with the land and it will drive them the minority groups out of their vital positions.
And we don't have to go far away. Look at Israel and the Palestinians. The moment Israel controls-- whether within democracy, within the Green Line, or even we had the territories-- it controls the land, it controls the economic situation of the Palestinian minority within Israel, not to mention the Palestinians in the occupied territories. And they are feeling, in a sense, stripped out of their basic economic rights.
So the way to move forward is to acknowledge these differences and to move very carefully to democracies that are built not only on, as Celestin described it, the decision of the majority by voting, but also to some built-in-- maybe constitutional-- agreements between the various ethnic groups that comprise each country.
And finally, I want to move to what this means to my own little country. In Israel and Palestine we are fairly lucky. On the one hand, the same lesson holds for us. There are two ethnic groups strongly opposed to one another in a very long conflict that lasts something like almost 100 years. It started somewhere in the '20s-- the 1920s.
And it's clear that they cannot live in one simple democratic state together, because that would mean basically that one group-- one ethnic group-- controls the other. Because the Jews are the stronger, the richer, the more organized group. And they will control the others and rob them of some basic economic rights. And it will be resisted by the other group. So the conflict will not end.
So if people talk today about one state and one man, one vote, it's a completely unrealistic view. It wouldn't work.
So what can work? In this specific case, partition can work. Why it can work while it cannot work in other countries? Because in our Arab countries, there is a history of 100 years of nation-states. And you cannot destroy this history. And you cannot destroy the institutions and the important values that it gave birth to.
But Israel and Palestine were never acknowledged by the international community as one nation-state. On the contrary-- all the major UN decisions talked about two states. All the negotiations since the Peel Commission in 1937-- or 8-- talked about partition. And the UN decision that gave the right for Israel to appear in '47 also spoke about two states. So this two-state solution is in this specific case possible, it is doable. You just need sufficient political power to implement it.
But in a sense, it's the same solution that we offer to all the Arab countries. It's an arrangement between the different ethnic groups. In most cases, the solution can be within one nation-state. In the case of Israel and Palestine, it can be done through partition, the same way that Czechoslovakia, for example, could do-- it could split into two different nation-states-- or Yugoslavia. But in other places, it's impossible to do. Luckily, here it's still possible. Thank you.
KAUSHIK BASU: Two short questions if you want to ask. Otherwise, you can hold it back actually for after lunch. Because I want to set up [INAUDIBLE] have time.
AUDIENCE: [INAUDIBLE] question.
KAUSHIK BASU: You have a question? OK, he's [INAUDIBLE].
AUDIENCE: So I think the issue of optimal state formation is a really very interesting one. And from an economic point of view put inside the politics, you talked about the advantage of public goods being shared more broadly and their increasing return to scale-- a real public good, the one, the bigger state. But on the other hand, you have diversity of preferences if you want smaller. And you can talk about balancing the two.
And so I guess the question is-- within a single state solution, you have protection of minority rights. That's why we have the Bill of Rights. And the question, I guess, is what are the limitations, as you see it, on the ability with the law to have protection of minority rights?
And then as you apply that to two particular situations. One of them was a very interesting question of the [INAUDIBLE] between a staunch independence. And one of the questions was there was a debate even about how the ballot should be framed with some people saying should Scotland be independent-- comma-- again. And that would frame the election.
So I wrote a paper arguing that because of the EU-- which meant that from an economic point of view they could have the advantages of a big market-- but there were very marked differences between UK and Scotland. Scotland was putting tuition down to zero and UK was raising tuition. So, very different fundamental beliefs that [? could ?] be satisfied. It wasn't a conflict in Northern Ireland, but it was a question of whether there should be two states or one state.
The other one is the United States, where we have semi-independent nation-states, much like the Indians-- American Indians. But we have not been able to have adequate protection of the minority rights. And do you think that they should be made independent states?
JOSEPH ZEIRA: No. I say it very clearly that in most cases where the nation-state cannot be split--
AUDIENCE: It can be split.
JOSEPH ZEIRA: No, no. [INAUDIBLE]. No, no. I mean that there are good reasons not to split it. An arrangement between ethnic groups, per se, can be a big step in solving the problem.
I think that in the case of Israel and Palestine this is even more impossible than in other countries. Because you have to think about, for example, about the state of Israel per se. Forget about the occupied territories. In the state of Israel we have 20% Arab Palestinians, a minority civilian population, that has been as such for the last 70 years very loyal basically. All their fights for their rights and for everything was done in a very peaceful way. And still they are strongly discriminated against in many ways. I'm not going to go into the list.
Just nowadays they passed the new law that claims that not only that Israeli would be both democratic and Jewish state, but the Jewish state is going to be more prevalent than the democracy. It's called the law of the nation. Anyway. I don't think they passed it formally, but they passed it in a committee of the parliament. They're pushing strongly through.
So in a situation like that, you create such built-in discrimination and animosity between the ethnic groups that if it's only 20% then they would say, OK, we'll live with it, we'll stick to our land. The Palestinians have a word for it, which is [ARABIC]. [ARABIC] means we stick to our country. We stick to our land. We are not giving up.
But if it's more than 20%-- if it's going to be something like 50% or 60%-- it's going to be an open civil war. And I think that any solution is better than a civil war.
Yes. I'm sorry, I'm not giving the right of speech.
AUDIENCE: This will be pretty quick. So I do have to wonder about the long-term stability of the national boundaries that were draw in 1917, given the fact there do seem to be cross-boundary identities that are growing in strength-- and still appear to be growing in strength-- in comparison to national identities. So it does to be the case, for example, that many Shia in Iraq seem to feel more in common with Shia in Iran than they do with Sunnis in Iraq, and so on and so forth.
You've also got the Kurdish nationality, which is resurgent and crosses all of those existing boundaries. And it's hard to imagine that ever dying down until there is some kind of nation-state or something like that for all of the Kurds. So I'm just wondering whether in the long run as much respect for 1917 boundaries as you appear to have is going to prove workable or even warranted.
Second part of your question is if the answer is yes might it have something to do with however it was that the Swiss managed to form a single nation-state out of three very distinct-- at least linguistic and cultural-- identities?
Four, sorry. Missed the fourth.
JOSEPH ZEIRA: Well first of all, the two questions seem to contradict each other. I'm supporting the idea that nation-states in the Middle East can have a lot of groups, a lot of nationalities, a lot of ethnic belongings and still function together. The only problem is that they have to work hard on how they share the power between them. So this is true.
Whether we can replace this old 1917 borders or not, I think it's very hard to do it. But more than that, I think it's very dangerous to do it. Because when you have stabilized into some form of equilibrium-- and equilibrium has a dynamics of itself-- it increases people's loyalty to the nation-state and feeling of belonging as long as they're not extremely discriminated against and so on-- then it has a power in itself. But it's going to be chaotic.
If you want, for example, to create a Kurdish state in the Middle East, you'll have to fight not only against the government of Iraq, you'll have to fight against the government of Syria, and the government of Iran, and the government of Turkey. I don't see anywhere in the world that can do it as a practical solution in the near future.
So instead of going to impractical idealistic solutions, let's try and work something that can work, that can solve the problems. The problems are not in the heavens. We had some coexistence of these different ethnic groups from time immemorial until fairly recently. Democracy opened the Pandora's box. I say it's OK-- we can have democracy, but we have to accompany it with some serious arrangements. That's all.
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Presentations given during the April 12, 2018 conference, Contemporary Challenges in Law, Economics, and Conflict, organized by the Cornell Research Academy of Development, Law, and Economics (CRADLE) and the Mario Einaudi Center for International Studies.
Welcome and introduction by Kaushik Basu, professor of economics and Carl Marks Professor of International Studies, Cornell University; and Robert Hockett, Edward Cornell Professor of Law and professor of public affairs, Cornell University.
“The Economy of Reputation: The Challenge for Africa in a Post-Democratic World” by Célestin Monga, vice president, Economic Governance and Knowledge Management, African Development Bank
“Economics, Democracy, and Nation-States in the Middle East” by Joseph Zeira, professor of economics, The Hebrew University of Jerusalem