Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
By Thomas L. Friedman
Globalization 1.0 (1492-1800) shrank the world from size large to med. Dynamic force was countries
globalizing 4 resources & imperial conquest
Globalization 2.0 (1800-2000) shrank the world frm size med-small spearheaded by coy globalisaing
for mkt and labour
Glob 3.0 (2000- ) shrinking the world from small to tiny & leveling the playing field.
Countries globalizing coy globindi/small coy glob
Europ/amediverse group
Anyone can reap the benefits of globalization now with internet, technologies that enable meetings
to be held without needing to be physically together.
How did world become flat? Through 10 events frm 1990s to 2000. 11/9berlin wall came down
which allowed us to think of the world as a single space. 8/9 ; 9 Aug 1995 when Netscape went
public, allowed browser to display images &data stored on websites & stock offering trig dot-com
boom which became a bubble and resulted in assive overinvestment in fiber-optic telecom
cablemin cost of trans voices, data and images to 0affected india a lot workflow
revoutsourcing, offshoring, insourcing, open-sourcing, supply-chaining, informingwireless
access and VoIP (turbocharge these new forms of collab so you can do any one of them anywhere
with any device. 1990s, ppl of china, india, Russia, eastern Europe, latin ame and central asia all incr
free to join free market didnt even have to leave home to partake.
10 forces enable connectivity & collaboration at a distance are flattening the Earth & leveling the
field of competitiveness.
No guarantee that ame/western eurp will cont to lead the way.
Flattening of the world means the world is changing in ways that req ame to step back and re-
evaluate how they can make the best use of this situation. Using tactics which were successful prev
might not be successful now.
Building strong statebuilding strong individuals
Solution must be found themselves as ame have basic econ and edu tools to do that.
Crisis due to 3 gaps: (1)Ambition gap-young energetic Indians&chinese vs lazy ame (2)Numbers Gap
insufficient engineers &scientists (3)Education gap-outsourcing to get better-skilled&more
productive ppl than ame workers.
Systemic Vulnerability & The Origins Of Developmental States: Northeast And Southeast Asia In
Comparative Perspectives
By Richard f.doner, bryan k.ritchie, and dan slater
Institutions and investors: The Politics of the Economic Crisis in Southeast Asia
By: Andrew MacIntyre
Politics an important factor as to why investment reversal was greater in some countries than in
others. Specifically, veto authority (rigidity & volatility extreme ends that are suboptimal during
times of crisis) caused govt to responses to be diff
Govt responses in times of crisis impt for investors
Countries chosen for analysis : Thai, Msia, Indonesia, Philippinescomparable in structure & dev
level, broad orientation of econ policies & coalitions underlying govt similar at the time, located in
same region, hit by 1st currency collapse in Asia. Initial cond & econ vulnerability not identical but
diff dont correlate w econ outcomes.
Strong differentiation in relation to dept var (investment) & indept var (institutional framework of
politics). Philippines suffered least severe, Malaysia and thai hit hard and indo suffered most.
3 indicators used : gross domestic investment, capital inflows and rate of GDP growth
institutional framework policy postureinvestment
The economic consequences of political institutions: (1)Douglass Norths work on the imptance of
stable & secure ppty rights regimes for investment & growth in econ dev of Europe. Introduction of
new political insti was impt to constrain power of political executive, which prov a more stable and
secure environ where investors less discouraged by risk of capricious policy actiongreater
confidence that political execs would adhere to their proclaimed policies as there were other
poltical insti to check on themcan be seen in modern day as well whr industrial democracies
politicians delegate mgt of a special area of policy to a credible nonpartisan 3 rd party i.e. central
bank that prov additional check on exec actionhelps expl rapid rise of investment & growth
globally. When govt is inst contrained, a more stable & predictable policy environ exists for investors
VS (2)Flexibility in policymaking & economic reform crucial to make unattractive invesmt
environment more attractive & prevent an attractive one from losing appeal.
Using George Tsebelis veto player framework allows us to compare, calibrate diverse systems of
fovt. It diff political systems by e no.of actors who can bloc/veto a policy change. A veto player:
ind/collective actor whose agreement is req 4 policy change/legislative change. The higher e no.of
veto players, the further apart their policy preferences, the more diff for policy changemore
stable & predictable policy environ
R/s between no.of veto players & policy risk for investors is a U-shaped curve tht passes through a
min. more than 1 veto player helps reduce policy volatility but at some pt of inflexion, no additional
veto players are welcome as they serve to increase policy rigidity. Fewer veto playergreater risk to
ORs of policy volatility.
Veto players id by both constitutional structure & party system where players who are rendered
mute/redundant are discounted if their aggregate pref are subsumed by agg pref of others.
Thailand: 2houses of parliament. Upper house had powers of delay rather than actual veto, w no
scope 4 judicial review. Only house of rep carried veto power. Thai also had multiple weak parties
(10-12) being rep in parliament, making coalition in govt inevitable (6/more parties)@least 6 veto
players as prime minister (pm)risked coalitional collapse if he attempted to override serious
oppositionfragmented control over policy as each parties wanted to fight for their own
interest/side pmt.
- Property mkt boom failing by late 1996 which threatens banks & financial insti, export growth fell in
1996 (total exports decreased) + much lending funded through ST foreign borrowing
- Dec1996 to nov1997, govt Chavalit Yonchaiyudh: looked impressive & competent in the beg but was
beset by paralysis, corruption. Institutional config made it diff for any govt to intro major policy
change due to dispersed veto power. Amnuay was installed as finance minister and he aimed to cut
govt spending. However, this created opposition.
- Feb 1997: 1st default on foreign loan w announcement tht countrys largest fin coy merging to avoid
collapse. Many went to withdraw their money. 3rd march, Amnuay & central bank gov Rerngchai
Marakanond suspended trading of fin shares and announced emergency measures to reassure
nervous mkts req tht all banks & fin coys make stronger prov 4 bad debt and 10 of e weakest fin
coys have to raise their capital base within 60days. Did little to reassure mkts. When trading
resumed, fin shares fell. Some members of govt had interests in e 10 insitutions &vetoed actual
implementation of tough measurescentral bank had to pump in new capital to keep these coy
afloat in e face of panicked ORS. Chavalit delayed measures to prevent risking collapse of his govt.
central bank was also spending down reserves to prop up exchange rate. Many people started to
exchange their currency to the dollars (increasing supply of thai baht and causing it to fall further).
Amnuay resigned, taken over by Thanong Bidaya; he annouched suspension of 16 fin coy while
central bank was trying hard to prop up baht.
- Reserves of Central bank exhaustedFall of baht on 2nd july 1997 due to failure of 1st rnd of crisis
mgt tactics
- Thanongs policies blocked and resigned 19th oct
- ORs confidence fell exchange rate fell, capital flew out of country and lending dried out due to govts
inability to deliver necessary policy adj
Philippines: presidential system of govt w a legislature having 2 chambers (bicameral) house of
reps & the senate have full veto power over legislation. Multiparty system w about 6 incohesive
parties gaining rep in the Congress. Need for a multiparty coalition in each chamber for president to
pass legislation. Unlike thai, the president is SEPARATELY elected and not beholden (owing a duty to
some1 in return) to the parties for tenure & doesnt req consent of a majority of each chamber 4
legislation to pass but as long as majority is achieve, precise size & Party composition dont mater.
No stable majority of disciplined partieseach legislative chamber as a single collective veto player.
No. of veto players3 : president, senate, house of rep w judiciary occasionally serving as a veto
player to overturn actions approved by president & congress. Philippine presidency has a range of
formal & informal discretionary powers and many legislators migrate to party of new president aft
elections.
- Intermediate case whr thr were institutional checks against policy volatility but sufficient scope for
flexible executive action on pressing issues
- Crisis struck Philippines during final 12 months of Fidel Ramos term as president. Policy adj
(exchange rate & monetary) involved executive agencies/central banks and not the
legislaturepresidentialism meant that exec decision-making authority conc in president vs in thai
where exec authority was fraught as the executive- the cabinet was made of all the veto players
- Economy was experiencing growth
- Peso was allowed to dep sharply on 11july aft costly effort to defend currency and adj Mp, enhanced
bank reg, tightened FP (inc tax, decr G spending to decr AD) and a tolerably timely & coherent
outcome was achieved. Central bank worked w govt to reduce liquidity. Philippines focused on
oversight arrangements for the banking sectors (limit bank exposure to ppty sector & incr cover
against forex volatility), fiscal mgt
- 2 serious prob for Ramos: (1)income tax laws: central to IMF extended fund facility (EFF) agreement
in 1994; scheduled to expire in june; with upcoming elections, some legislators champion higher tax-
free thresholds. Agreement met 8dec by house, senate finally. Late but not too late oucome for help
by IMF. (2)oil deregulation: feb1997 prev heavily subsidized and reg oil industry but public
opposition arose due to rising oil prices + depre of peso. Several members of congress challenged
the dereg and supreme court overturn law on 5novoil industry pricing&admin was confused+incr
fiscal burden on gov + could jeopardise fin support to battle econ instability by IMF as it was also a
component of EFF agreement
- constraints on exec action frm legislature & judiciary sufficient to preclude possiblility of radical
policy volatility
Malaysia: more centralized. Multiparty system, only lower house of parliament has vetio power. It
has a longstanding & oversized coalition madeup of diff political parties barisan nasional that is
made up of parties tht divide electoral map among themselves b4 each election 2 prevent
competition amongst the group. The absence of competition among partieis in barisan tog w history
of stablilitybarisan is a unitary actor/single party. United malays national org overshadows much
smaller ethnic & regional parties in barisan & controls all key cabinet posts. Crucial battles in msia
not among parties in coaltion but within UMNO. One collective veto player- Barisan, dominated by
UMNO.
- Central bank intervened 2push up i/r to bolster exchange rate. In july ringgit came under pressure
following devaluation of baht and manilas decision to devalue peso.
- PM Mahathir championed the dev of local corp sector and unwilling to see this reversed by higher
interest rates due to fall of ringgit as those who had access to extensive bank lending were closely
allied with UMNO party leadership & him. He started to blame foreign ORS& hedge fund operators
for messing SEA mkt. He carried out moves to favour the large umno-connected firms which cont to
rapid growth in money supplyfall in ringgit. Mahathirs own supporters in party was anxious as
their money were affected and Anwar + Daim urged adj to his policy stances. Mahathir, afraid of
losing support retraced most policies. He then renewed such policies again in late sept. His policies
were expansionary & sought to restrict ST foreign ORS but It was failing to stop the decr in biz
confidence. He then let Anwar make some policy changes w formation of a new national econ action
council under leadership of Daim so as to prevent Anwar from gaining econ centre stage. Anwar
unveiled dec in govt spending, increase in lending requirements (contractionary policies)a stark
contrast as opposed to what was implemented b4. Mahathir & Daim working to ensure these
policies didnt undermine key party supporters. Anwars position weakened as msias econ cond
were worsening, causing Mahathir to yet again urge for expansion.
- No insti checks on exec action
Indonesia: even more centralized than msia. Both president & house of reps have veto power over
legislation but presidents party so dominated the legislature (Suharto) and his own party that the
legislature is discounted as a veto player w pref diff from president. Only one veto player- president,
a single person.
- 11july, CB widened daily trading bank of rupiah. mid aug, govt intro sharp liquidity squeeze to
eoncourage ORS to hold rupiah depts, CB pushed up i/r and state enterprises trans depts. From
commercial to central bank. Govt spending froze for 2weeksdrained liquidity frm the interbank
mkti/r rose sharply. Lifting of restrictions on foreign ownership of shares for coys listed on Jakarta
stock exchange announced. Rupiah stabilized in sept but fell in early oct. govt called for IMF
assistance and signed an agreement for fin support where it committed itself to an intensification
strategy it had alr begunclose banks down, reduce import tariffs, cut g spending, removal of entry
barriers for foreigners 2 wholesale&dist activities but Suharto also signed a decree to authorize
initiation of some buidings projects and instead of closing banks down, he bailed them outvolatile
policy signals
Initial conditions were similar and Philippines actually fared worst w its high public debt and rapid
credit growth
From most centralized ( volatile) to least (rigid): Indonesia, Malaysia, Philippines, Thailand.
Institutional framework alone not enough to explain the diverse outcomes but it is a needed factor.
Institutions do not drive policy but they impose parameters on whats possible
Most adv industrial democracies located centre of spectrum, less susceptible to stark differentiation
based solely on dist of veto authority while developing countries more likely near extremes of
spectrum either bcus democracy is weak/nonexistent/ in democratic party systems are more
likely to be fluid, fragmented in policy terms (dispersed veto authority)
Assume roughly equal shock & vulnerability to crisis across countries and thus diff outcomes are the
result of diff policy responses to crisis. Policy responses flow from institutional set-ups
Logic of veto points: (1) Decisivenessappropriate flexible & responsive policy in dynamic
environments req institutions to respond in an efficient & timely manner. Too many veto points
leads to policy rigidity that wont respond when needed. (2) Credible commitmentstable,
dependable policy environment req ability to make binding promises. Too few veto points leads to
policy volatility.
Thailand: pre-1997 health policy focused more on infrastructure than on services like insurance.
Infrastructure was at times made redundant as shown by the low bed occupancy rates. This is due to
electoral system incentivizing personal over party votes. Then came the 30baht solution health care
scheme which decreased the uninsured from 54.5% to 5% (1996-2002)effective income in rural
area increased 5-10%
Thaksin & yingluck: centralization of power, redistribution of resources caused backlash among
elites in rural south. Accused of suppressing media critics and of vote buying, using policies to enrich
himself (sold off shin corp and no taxes).
A Guide To The Constitutional Structures & Electoral Systems Of East, South And SEA
By Allen Hicken, Yuko Kasuya
Describes the consti structures and electoral system of the 17 asian-pac countries since 1945
Recognition that e consti structure & electoral system a country adopts can have impt implications
for democratic stability, econ growth & social welfare
Following convention used by Jones (95) , powell (82) and others, only systems tht were indpt & had
elected govt 4 a min of 5 yrs are included. Include any regime tht had held reg elections 4 at least
5yrs, in which opposition parties were allowed to participate. Exclude regimes tht held elections for
a minority of legislative seats. Years 1945-2000. Countries are divided into multiple time periods to
reflect sig changes in the variables listed.
3 Different ways to classify constitutional structures across Asia.
1st way: Presidential systems: an executive (1) is elected by a popular vote (b) holds office 4a fixed
term; not dept on parliamentary confidence (c) selects & directs the cabinet (d) has some legislative
authority. Parliamentary systems: executive is (a) selected by e legislature (b) dept on legislatures
confidence.
Of 17 countries, 15 had a parliamentary system at one time/another w majority of these being
former British colonies Bangladesh, Burma, India, Malaysia, Pakistan, Papua New Guinea,
Singapore, Srik Lanka. Bangladesh, Burma, india, indo1, Pakistan, Singapore 1, SK3, Sri Lanka 2 each
have presidents as head of state but not classified as presidential systems since these presidents are
not pop elected/do not have a cabinet/legislative authority. 5 countries blangadesh (1), Philippines
(1,3) and SK (1,3), Taiwan (1), South Vietnam(1) have had a presidential regime which meets 4
criteria listed above. 7 countries used the hybrid systems tht dont fit well into either category.
Singapore (2) directly elected President has some legislative autho & can appt/remove the PM.
However, the PM & cabinet are also subject to parliamentary confidence.
Prime Minister: Head of an elected govt. President: Head of a republican.
2nd way: legislative structureunicameral/bicameralupper house can be elected/appted
3rd way: structure of central-local govt relationsextent e national govt formally shares power w
sub-national govt. Federal systems: formal division of power between central/national govt and sub-
national govt; formal div of legislative authority. Such a formal division dont exist in unitary states.
Election of president & presidential vetoes: voters can elect president directly/choose rep who then
elect the president. Plurality voting (relative majority) VS pref voting rank candidates in order of
preference(Sri Lanka)
Presidential term limit non-existent in Bangladesh, indo (1), Philippines (2), Singapore and South
Korea (2,3), ban on re-election in SK (45) while Philippines (3), SL, Taiwan, SK(1), Indo (2) and
Philippines (1) places a 2-term limit on presidents.
SK (3) and Indonesian presidents are the most powerful in terms of veto powers. Their vetoes cant
be overridden. Taiwans president has no veto power indpt of the exec yuan. SL president lacks veto
power over legislation but approval is req before results of a referendum becomes law. SK (1,2,4,5)
and Philippines presidents have package vetoes tht take a supermajority to overturn. Bangladeshi &
Pakistani presidents can veto non-money bills but veto can be overturned by simple majority.
Singapore president cant veto most legislation. Created in 1991 via a consti amendment. Can veto
certain govt apptmt as well as bills tht affect the CPF. President must approve budgets of certain
govt agencies & can veto bills relating to foreign borrowing. His veto can be overridden by a 2/3rd
vote of legislature
Parliamentary system & heads of state: duties of the head of govt ( PM) separated frm tht of the
head of state (President/monarch). Normally, head of states powers are ceremonial but some enjoy
additional powers refuse to sign bills passed by the legislature/veto power. Veto power normally
limited to non-monetary bills & vetoes can be overridden by majority vote of 1/both legislative
chambers Bangladesh, India, Malaysia & Nepal. Thai king enjoys greater power than most
ceremonial heads of state. He can withhold his consent on any bill & send the bill back to parliament
for redeliberation. Override of kings veto req a 2/3rd vote of both houses.
Selection of the legislature: Electoral formulas for the legislature: plurality formula& proportional
representative to allocate legislative seats. Mixed-member system employ a combi of these
formulas. Plurality formula: member with the highest no of votes in a given district is elected;
usually in single-seat districts but sometimes in multi-seat districts like Thais lower chamber, the
Philippine senate, provincial seats in indos electoral collegevoters have as many votes as there
are seats to be filled & the highest polling candidates fill the avail seats. Singapores system aft 1987
combines a handful of single-seat districts with group representative constituencies (GRC), each w 3-
6 seats. GRC can be contested only by teams of candidates frm the same party (allied indpt) &
@least one member from each team must be frm the malay, indian/ minority community. Voters
cast a single vote for a team and team with a plurality of the votes win all the seats in that GRC. A
few countries give voters a single non-trans vote (SNTV) rather than multiple votes. Under SNTV
there are multiple seats in each district and each voter has one vote. Seats awarded based on
plurality basis election of SKS Nat Assembly frm 1972-1980 & Japanese lower chamber elections
until 1994. PR: seats are allocated to parties in proportion to votes obtainedclosed list PR, Flexible
list PR & SNTV. Closed listpresent a list of candidates to e electorate w voters selecting a party
rather than candidate. Parties rec seats in proportion to their overall share of votes. Candidates
awarded seats based on their position on the list, voters cant det position on list. Flexible list
voters cast one vote for a party list but can also vote for an indi candidate on the list. Parties
awarded seats on a PR basis & candidate vote totals used to det candidates place on the party list.
Candidates in Indo (1) had to rec @least 300k votes to win a seat. Nepal, Pakistan, SL use STV
systems to elect their lower chambervoters can rank as many candidates as they wish both within
and across diff parties in order of pref. any candidaes who reach a certain quota of 1 st choice votes
are deemed elected. The surplus votes of the just-elected candidate trans to the 2nd choice
candidates as marked out by the ballots. Once vote trans are complete, individuals who reached the
quota are declared winners. Process cont until all seats are filled. In indo, certain threshold must be
reached for parties to win any seats.
Mixed member/two-tiered systems: 1 tier is allocated nominally while the other tier is allocated on
the basis of party lists. Nominal tier: candidates allocated based on votes cast 4 candidates by name;
plurality formula. In south korea and Taiwan, voters cast a single fused vote for a candidate in a
nominal tier district which also counts as a vote for that candidates party 4 purposes of the list tier.
Others cast votes separately for both nominal and list tiers. Votes are linked when there is a trans of
votes from one tier to another. Seat allocation can be indpt or linked to the nominal and list tiers as
well. SL use a mod form of PR w preferential voting in its 1 st tier. Each voter chooses a specific party
list and up tp 3 of that lists candidates. The party w highest votres in district rec one bonus seat
awarded to candidate w highest vote total. Remaining seats in the district awarded to
parties/groups in proportion to votes received. Seats in 2nd tier allocated in a proportional manner
based on national party vote shares
We in the United States are very used to our single-member district, winner-take-all style of
elections. We've all grown up with a system where we elect members of our legislatures
one at a time in small districts, with the winner being the candidate with the most votes.
This system seems so "natural" that proportional representation (PR) elections may at first
appear a bit strange to us. Adding to the potential confusion is the fact that there are
several different kinds of PR systems in use around the world. But in reality, the principles
underlying proportional representation systems are very straightforward and all of the
systems are easy to use.
The basic principles underlying proportional representation elections are that all voters deserve
representation and that all political groups in society deserve to be represented in our
legislatures in proportion to their strength in the electorate. In other words, everyone should
have the right to fair representation.
In order to achieve this fair representation, all PR systems have certain basic
characteristics -- characteristics that set them apart from our current election system. First,
they all use multi-member districts. Instead of electing one person in each district, as we do
here in the U.S., several people are elected. These multi-member districts may be relatively
small, with only three or four members, or they may be larger, with ten or more members.
(The figures below illustrate districting maps for a hypothetical 50-person state
senate. Figure 1 shows 50 single-seat districts, as is common with plurality-majority
systems. Figure 2 depicts 10 five-seat PR districts, and Figure 3 shows 5 ten-seat PR
districts.)
The second characteristic of all PR systems is that they divide up the seats in these multi-
member districts according to the proportion of votes received by the various parties or
groups running candidates. Thus if the candidates of a party win 40% of the vote in a 10
member district, they receive four of the ten seats -- or 40% of the seats. If another party
wins 20% of the vote, they get two seats, and so on.
That, in a nutshell, is how proportional representation works. But while all PR systems have
the same goals of ensuring that all voters receive some representation and that all groups
are represented fairly, various systems do have different ways of achieving these goals. So
it is helpful to see how different kinds of PR systems work in practice.
Types of PR Systems
Party List Voting
Party list voting systems are by far the most common form of proportional representation.
Over 80% of the PR systems used worldwide are some form of party list voting. It remains
the system used in most European democracies and in many newly democratized
countries, including South Africa.
How It Works. Legislators are elected in large, multi-member districts. Each party puts up
a list or slate of candidates equal to the number of seats in the district. Independent
candidates may also run, and they are listed separately on the ballot as if they were their
own party (see below). On the ballot, voters indicate their preference for a particular party
and the parties then receive seats in proportion to their share of the vote. So in a five-
member district, if the Democrats win 40% of the vote, they would win two of the five seats.
The two winning Democratic candidates would be chosen according to their position on the
list.
There are two broad types of list systems: closed list and open list. In a closed list system--
the original form of party list voting--the party fixes the order in which the candidates are
listed and elected, and the voter simply casts a vote for the party as a whole. This is shown
in the first ballot below, which illustrates an election for the House of Representatives in a
five-seat district. Voters are not able to indicate their preference for any candidates on the
list, but must accept the list in the order presented by the party. Winning candidates are
selected in the exact order they appear on the original list. So in the example here, if the
Democrats won two seats, the first two candidates on the pre-ordered list--Foster and
Rosen-Amy--would be elected.
A variety of different formulas exist for accomplishing the actual allocation of seats to the
parties. One of the simplest seat allocation formulas is the called the "largest remainder
formula." In this approach, the first step is to calculate a quota, which is determined by
taking the total number of valid votes in the district and dividing this by the number of seats.
In the example in the table below, 100,000 votes were cast and ten seats are to be filled.
100,000/10 = 10,000 which is the quota. The quota is then divided into the vote that each
party receives and the party wins one seat for each whole number produced. So the
Republican party received 38,000 votes, which is divided by 10,000 to produce three seats
with a remainder of 8,000. After this first allocation of seats is complete than the
remainder numbers for the parties are compared and the parties with the largest
remainders are allocated the remaining seats. In our example, two seats remain to be
allocated and the Republicans and Moll, the independent candidate, have the largest
remainders, so they get the seats. Ultimately all the parties end up with the number of seats
that as closely as possible approximates their percentage of the vote.
This system was originally invented in West Germany right after World War Two, though
since then it has also been adopted in several other countries, including Bolivia and
Venezuela. It is still one of the least used PR systems, but in recent years it has begun to
garner a great deal of attention. In fact, it is now one of the "hottest" systems being
considered by those involved in electoral design. In part this growing attention is a result of
MMPs unique claim to be a "compromise" between the two main rival systems. In the
1990s New Zealand abandoned its traditional single-member plurality system for MMP.
Hungary also adopted this approach. Most recently, the newly formed parliaments of
Scotland and Wales used this system for their first elections.
How It Works. People cast votes on a double ballot--see the ballot below. First, on the left
part of the ballot, they vote for a district representative. This part of the ballot is a single-
member district plurality contest to see which person will represent the district in the
legislature. The person with the most votes wins. Typically half of the seats in the
legislature are filled in this way. So in a hypothetical 100-member state legislature, the
winners of these district contests would occupy 50 of the seats.
On the right part of the ballot--the party list portion--voters indicate their choice among the
parties, and the other half of the seats in the legislature are filled from regional lists of
candidates chosen by these parties. The party lists are closed in the German version.
These party list votes are counted on a national basis to determine the total portion of the
100-seat legislature that each party deserves. Candidates from each partys lists are then
added to its district winners until that party achieves its appropriate share of seats. The
following table illustrates how this process works for our hypothetical election. The
Democrats won 40% of the party list votes in the 100-member state legislature, so they
would be entitled to a total of 40 of the 100 seats. Since they already elected 28 of their
candidates in district elections, they would then add 12 more from their regional party lists
to come up to their quota of 40 seats.
How It Works. The voting process is illustrated by ballot below. All candidates are listed in
the same place on the ballot. Instead of voting for one person, voters rank each candidate
in their order of choice. So if you like Campbell best, you would mark the "1" after his name.
If you liked Gomez second best, you would mark "2" by his name, and so on. You can rank
as few or as many as you want. This ballot illustrates the use of the AccuVote system used
in Cambridge, Massachusetts to elect its city council and school board. Voters fill in the
ranking numbers as they would for standardized tests taken in school, which allows for
computerized vote counting and ballot transfers.
In the single transferable vote, votes are transferred around just as the students moved
from candidate to candidate in the analogy. The exact order of the transfer process is
illustrated in figure below. An example of how the votes are actually transferred is shown in
the table that follows. For the sake of simplicity, assume that there is a three-seat district in
which six people are running for office. The first step in the process is to establish the
threshold: the minimum number of votes necessary to win a seat. The threshold usually
consists of the total number of valid votes divided by one plus the number of seats to be
filled, plus one vote. The formula looks like this: Threshold = (valid votes/1+seats) +1 vote.
So in our three-seat districts with 10,000 voters, a candidate would need 10,000/1+3 (which
is 2,500) plus one more vote, for 2,501.
Party Fabrication: Constitutional Reform And The Rise Of Thai Rak Thai
By Allen Hicken
Describe, analyse success of Thaksin Shinawatra & his Thai Rak Thai party, arguing tt neither personal
assets/effects of the crisis enough to explain the rise and success. It was instead the 1997
constitutional reforms tht altered thais political-institutional landscape that created new
opportunites, incentives 4 political actors tht thanksin and his party took adv of. The reforms helped
reduce no of political parties and increased the power of PM relative to coalition partners and
intraparty fraction
2001 electoral victory of TRT party brought an end to a short-lived multiparty coalition govt that had
been the norm
Some consequences of bold policy initiatives: rise in rural indebtedness, 2000-plus extrajudicial
killings during war on drugs. Critics claim that thaksin is trying to centralize political power and create
a dominant party for thai
Sale of Shin Corp (founded by Thaksin and owned by his famiy) to a sg firm for a subs, tax free profit
in jan06seen as thaksin using his authority for his own personal adv. Protests of the sale led thaksin
to call new elections and step down as PM.
A draft constitution was produced in aug1997: reforms aimed to reduce influence of provincial
politicians, increase accountability of both elected officials and government bureaucrats, promote
stronger, more nationally oriented political parties.
Elections & parties: previously, Thai House of rep used the bloc vote (BV) electoral system tht
combines multiseat constituencies w multiple votes & the plurality rule. 76 provinces divided into
142-156 electoral constituencies, each containing 2/3 seats. Voters in each constituency could cast as
many sep votes as there were seats. Voters cast their votes for ind candidates and allowed to split
their votes/partially abstain. Prohibited frm cumulating multiple votes on a single candidiate. Political
parties wishing to contest were req 2 field a full team of candidates and law req parties to run a min
no of candidates nationwide. Candidates req to belong to a political party to stand 4 election. 1997
constitutionBV system replaced by a mixed-member/2tier system. House has 400 seats elected frm
single-seat cons via the plurality rule & 100 seats from a single nationwide consti via PR. 4 nation list
tier, each party must submit a list of candidates 4 voters to consider. Voters then cast 2 sep votes 1
for candidate for single-seat const and 1 for party for the national list tier. Not linked. Candidates
must choose between running on the party list/in the constituency-cant do both. Parties with <5% of
the party list voters rec no list tier seats. New restrictions of party switchingcandidates must be
members of parties for @least 90 days prior election to be eligible to runto reduce last-min party
switching. Members of parliament who wisht o serve in the cabinet must surrender their seats in the
House. Introduction of a FULLY elected senate. Prev, senators appted by PM and came from ranks of
bureaucracy, armed forces, biz. Now, elected body depts. On SNTV electoral system to fill the
Senates 200 seats Japan, SK, Taiwan. Each province is an electoral constituency w 1-18 seats, based
on population. Each voter casts a single vote 4 candidate and seats awarded accord to plurality rule.
Senate candidates are however prohinited frm belonging to political parties campaigning 4 office.
Lesser individuals having too much power by having more than one authoritarian position.
New constitution allowed voters to directly place laws on the legislative agenda. 50k voters can
petition the Nat Assem to consider a piece of legislation/req senate to pass a resolution removing
office snr officials suspected of wrongdoing. Several superintendent institutions semiautonomous
bodies were also create to monitor govt and hold officials actable.
Local govt be filled via electionsdecentralisation
The draft was met with opposition from parties whose interests are threatened but the july1997
asian fin crisis tht hit thai started to show some of thais shortcomings in its political system. The
constitutional draft then became a symbol of govts commitment to difficult but needed political &
econ reforms. Consti reform and broader reform became linked. 11oct, king affixed his signature on
the doc for reform.
Critics fo the old thai party system: (1) Too many parties reduced effective governance, cont to
unstable, short-lived govt (2) Not cohesive short-lived alliances of convenience (3) Political parties
tended to focus interest of a relatively narrow grps of supporters and directed govt resources to
them (vote buying)
1 argument is that large no of parties in pre-reform due to different parties that ran for elections frm
constituency to consti, from province to province, region to region. Parties able to dominate elections
in their particular regions but very little coordination across regions. Pre-1997 parties tended to be
based in a particular region and drew much of their support from that region. But coord within
regions is v poorcleavages based on regional diff cnnot explain comparative lack of cross
constituency coord in thai. Another argument: greater the concen of power the stronger the
incentives 4 candidates to coorp in order to capture the prize. In prereform thai, power was in the
Senate that rep powerful military /bureaucrats + other Thai parties.
New constitution incr power of the PM relative to factions within his own party. (1)Cabinet members
are req 2 give up seats in parliament if they want to join the cabinetstakes w breaking w PM
higher. Restrictions on party switching PM can credibly threaten to call new elections if party
factions try to bolt, keep factions loyal to the PMincr cross consti coord incentiveslower effective
no of nat parties (2) Fully elected Senateelimination of appted check on politicians power, the
coord incentives stronger. (3) New constitution awards electoral bonus to parties tht mge to coord &
run a competitive national campaign in the form of 100 party list tier seats.
No of parties proportional to size of constituency. Better coord was a bigger factor in reducing no of
parties nationally than decline in no of parties at the consti level.
Fewer parties in govt + PM greater leverage over members of coalition = more stable govt
Pre-reform: BV allowed intraparty competitioncandidates/voters cannot rely on party label to help
differentiate between candidates frm the same party. Instead, they worked to dev a personal
reputation & personal network of support
Move to single-seat const brought an end to intraparty competition. New restrictions on party-
switching encourage party-building. National list tier encourage voters & candidates to place party
before person. To win the national party listsupplement local public gds w national ones- 30 baht
healthcare scheme
TRT promised protection & political power to domestic biz interests which were in dire straits aft the
crisis, with a populist campaign that promised tht the govt would now take an active role in
eliminating poverty and increasing social welfare. Govt implemented policies like the million-baht
village fund, 30 baht health care schame, debt moratorium for farmersTRT took adv of new insti
environ and chose a national programmatic appeal.
Democratization And Electoral Reform In The Asia-Pacific Region. Is There An Asian Model Of
Democracy?
By Benjamin Reilly
Trend toward democracy being accepted means for choosing & changing a countrys political
leadership. E.g. uprising against the Marcos regime in the Philippines in 1986, negotiated transitions
frm military-backed, single party govts in Korea & Taiwan in 1987, resumption of civilian govt in thai
in 1992, uN intervention in Cambodia in 1993, fall of indos Suharto regime in 1998, international
rehab of East Timor ended 2001.
Identifiable Asian model of demo characterized by aggregative electoral politics, centrist political
competition, nascent two-party systems. Institutional reforms has impact on elections, parties and
parties via political engineering conscious design of political institutions 2 achieve certain
specified objectives
Trend in Asia reversedless proportional elections, towards plurality
Systematic convergence in electoral & party systems across the APAC region and regions systematic
divergence frm developing democracies in other parts of the world
Trade off between efficiency (majoritarian elections) and representation (PR). PR facil direct trans of
popular pref & cleavages into e political sphere w as little interference as possible via political
parties rep distinct social groups, proportional elections & low barriers to minority enfranchisement.
Asia tries to engineer political stability through the design of democratic institutions. Mixed member
majoritarian (MMM) rule is highly disproportional with mosr seats elected frm local districts and a
much smaller proportion frm a party listtend to fxn more like plurality systems. Japan: intended to
reorient polltics away from special interests, promote dev of a 2-party system responsive to median
voter interestschange from SNTV w an overtly majoritarian form of mixed system, 3/5 of all seats
chosen frm single-member districts. SNTV leads to personalized and factionalised party politics.
In msia & sg electoral playing field tilted in favour of incumbent parties: msia uses e stnd
Westminster system w pluarility elections but consti boundaries favors malay communitygovt
won every election since indp and maintained 2/3 majority needed to amend constitution.
Singapore: most MPs are elected from multimember GRC, voters choosing between competing
party lists rather than candidates. And highest-polling party wins all seats in the district. This party
block system has benefitted PAP, which reg wins >90% seats in parliament. Many Asian MM system
runs the list component of elctions in parallel w district contest, w no linkage between the 2, unable
to compensate any disprop in either lists. Party list also lesser than single-seat consti vs other
coutries where the seats are split almost equallyAPAC govt try to min threat of political
fragmentation by restricting electoral prospects of minor parties & promote incumbents interests.
Lack of compensatory mechanism + relatively small no of list seats offered overall levels of prop
are like of a plurality systems.
Nascent parties try to engineer dev of their systems via new rules gov formation, reg & campaigning
of political parties. 3 types : (1) Promote development of a national party system and hamper
growth of regional/local parties (2) Control/influence/ restrict no of political parties (3) Strengthen
party org by building stable party systems from top-down. This can be done like in indos case: all
parties had to have a national support base as a precond to contest the transitional 1999 elections.
New rules req each party to est branches in at least 1/3 of indos then 27 provinces and in more than
half the districts/municipalities within these provinces. No of parties limited on the basis of
insufficient geo coverage & depth of penetration of their parties. Thai: must have @ least 5k
member within 6 months of party reg / face threat of deregistration aft 1997 reforms.
Strengthen parties int control over members to maintain greater org cohesiveness & stability &
restrict capacity of parliamentarians to change parties as in thai.
Use vote thresholds to limit no of parties which prevent election of smaller parties into parliament.
In thai & Taiwan: parties competing for party-list must attain at least 5%of vote.
Asian model of democracy moving closer to anglo-ame model of 2-party democracy. Exceptions:
indo & Philippines, both saw increase in party fragmentation following party openings tht
accompanied fall of the Suharto & Marcos regime. High levels of social diversity + both recently out
from extended authoritarian rule in which composition & no of parties were controlled from above
explains this pattern.
Reasons for the convergence on MMM electoral models & agg parties across the region : (1) Asian
values hypothesis- search for a stable, bal & harmonious political order (2) Self-int politicians seeking
to ensure electoral prospects by rejigging political rules in their favour but why & how asias
leaders have been able to push through this kinds of incumbent-benefitting reforms but not their
counterparts in Latin Ame & Eurp (3) Asias distinctive democratic development in recent years
heralds a new form of political architecture historic compromise between mass constituents (
need for more prog & effective parties & elite politicians who favour restrictions on political frag &
suppression of ethnic/regional movements)but why only in asia not elsewhere?
Why Isnt The Whole World Developed? Lessons From The Cotton Mills
By Gregory Clark
1910, New England cotton textile workers performed better than others. Local culture seems to det
workers perf. Such differences can help explain inter variation in wages. They also help in making us
und labor migration, choice of technique & sources of EG.
Examine underdev thrugh detailed study of the cotton textiles industry in the early 20 th cent as
factory prod of textiles was a 1st step on the path to industrailisation. Failure of poor countries to
dominate textile prod in the way their labour cost adv wld sugest is the result of inefficient labout
rather than failure of import tech/mgt skills/failure of local capital/imput mkt/scale scon within textile
factories. Thus, reasons 4 inefficiency of low-wage labour must be focus of explanation of underdev of
these countries.
Britain launched the modern factory system in textile prod in late 18 th cent and technologies soon
spread to North Ame & Europ. Other countries soon follow suit. Britain est 1 st spinning factory in
1771. US, French, Ruhr, Prussia followed.
Despite great labour cost adv of the continental (Mainland Europe) & Asian countries, few could
compete w the british ouside their domestic mkt before WW2. British still actted 4 81% of net X of
cotton yarn & cloth in international trade, faced little competition in unprotected mkt since besides
low labour costs in Asian countries, manu costs in all the low-wage countries were still higher in
Briain, making tariff protection necessary.
Decline of british textile ind from 1920s onwards attributed to managerial failures but this seems
misguided to Clark. (1) Given low labour cost of other countries, how did Britain managed to thrive in
the ind for so long. (2) Specific failures attributed to mgrs. Has lil impact on total costs & shld be
completely swamped by labour cost effects. How could an industry burdened by high costs for its
major input remain so long successful, when competing with others with lower wages?
True that other costs offset labour cost adv in low-wage countries ( had to M machinery/personnel
from Britain, had to pay transport fees+import duties)
England had better working hours, wages and lower dollars per plant/machinery
If according to the profit rate/rate of return, the adv of low wages in china and india would allow
production to expand rapidly. However, this did not happen. Why then did Lancashire (country in UK)
experience such an expansion?
Also, given the same production rate and taking costs of nonlabour input into acct, the Chinese could
have paid higher wages. Cost disadv of low-wage countries in other inputs explain little of their low
wages.
The British = England remained competitive despite high labour costs as worker efficiency
corresponded closely w real wages. Worker efficiency can be shown by looking at how many
machines each worker tended. Index of the no of spindles & looms per worker. Loom given a wgt of 1,
ring spindles wgt of 0.011 and mule spindles wgt of 0.008. Index adj to a per shift basis. The higher
the index the better.
Aggregate measure contaminated by : (1) Diff types of machinery used (2) Diff proportions of women
& children (3) Yarn & Cloth differed in fitness and quality but workers efficiency still most impt factor.
Better-paid workers were more efficient.
Taking into acct diff in labour efficiency, the only countries able to compete w British would have
been China, India, Japan.
Counter to (1) Diff machinery usedby 1910 only NA adopted auto loom which inflate no.of loom-
equivalents per worker in Ame but closer examination shows the same index being concluded-low-
wage countries employed many more workers per machine. Could anything other than efficiency of
workers explain these differences?
One explanation: Capital-Labour Sub: but low-wage countries not getting greater utilisation of their
capital except thru running longer hours. Seem to have gotten sig lower o/p per hr arnd 1910.
Efficiency of spindles/looms = % of a machines theoretical production det by speed machine was set
to run at, which was actually achieved. By 1920s, some evidence tht Japanese & chinese mills were
using their capital more intensively than British mills as o/p per spindle for Brit: 100, Japan 115, China
117. (Insert formula here/write) 1910-20, India shows no greater machine util than Brit so K-L sub
cannot exp e extra 3.08 workers per British workers.
K-L sub irrelevant in explaining excess manning of low-wage countries. Substitute L for K to reduce
total manu costs.
Another explanation: Raw Materials-Labour sub: possible to some extent to save cotton costs by
using more labour. Weaker yarns broke easily, req more labour to repair broken threads, can save on
total costs if labour cheap but this is not a good reason 2 explain extra labour in low-wage countries.
Why? (1) Only a few countries w high manning lvls used inferior cotton (2) Workers did not spend
much time repairing (3) Value of o/p appear to be reduced sig when inferior cotton used (4)
Overmanning was just as great as machines making finer yarns (5) Even processes unaffected by
cotton quality were overstaffed. China, India had supplies of good quality yarns. Strength of yarn
doesnt seem to have much to do w diff manning levels.
Another: Tech gaps: No, low-wage countries were not employing inferior tech. Tech were similar &
mgrs./skilled workmen supplied by Britain to op e machinery & train workforce in many countries.
Absence of secondhand machinery as well as setup cost for machinery in a mill was 20% of final cost.
India, china, japan had high capital stock growth rates in the late 19th and early 20th cent.
Antoher: Labour experience: Clark argues that this should NOT be a real reason. Basic constraint on
ave exp of workers was growth rate of industry. Ind which grew quickly had relatively inexp workers.
Basic det of ave workers exp was how rapidly employment was growing. Difficult to pose exp as
explanation: (1) No simple association betwn labour productivity & growth rate of local ind (2) Effect
of exp on competence of machines tender Is slight measured by earnings, once initial training period
has passed. Ave exp of workers in countries whr ind was growing quickly wld not be much shorter
than in mature centres of ind. The fact that young girls cld be recruited as temp workers evidence that
exp didnt matter much. Also, newer machines in low-wage countries: (1) Less repair to keep it
running (2) Higher machine-worker ratio need less workers actually.
Another: Inherent Labour Quality: poor nutrition/general training/no formal ed BUT nature of
operatives taskfew task demanded literacy; only need2 perf few simple ops repeatedly, strength
didnt mattersmall size didnt matter. If small size did matter, factories cld simply feed the workers
and gain enormous o/p gains. Whatever created the inefficiency didnt seem to be inherent since eg
New Eng employed most efficient op but these workers came from countries whose own textile ind
had v inefficient EEs
Another: Local: Clark thinks that the efficiency of workers is limited due to the local
environmentaffect ind choices, which correlated to local real wage.Mexico conservative, didnt
want to accept automatic looms.
Major cause of underdev in poor countries was inefficiency of labour rather than inability to absorb
modern ind tech.
Labour constrained by local environment. Productivity increase with labour intensification.
World Value Survey (WVS) worldwide network of social scientists studying changing values & their
impact on social & political life. Rep surveys in 97 societies containing almost 90% of worlds population.
Surveys show changes in what ppl want out of their life and what they believe. Provide valuable info abt
social change: values, beliefs & motivations of ord citizens. Anlalyse impact of global cultural change on
econ dev, creativity, quality of life & democracy.
Many basic values are closely correlated & can be depicted in 2 major dimensions of cross-cultural
variation: (1) Traditional/secular-rational helps contrast btwn societies in which religion is impt &
those whr its not. Nearer to trad pole emphasise e imptance of parent-child ties, deference (polite
submission) to authority, trad fam values, rejction of divoirce, abortion, euthanasia, suicide, have high
levels of nat pride & a nationalistic outlook. (2) Survival/self-expression valuetrans frm industrial to
knowledge society linked w shift frm survival values toward self-expression values. In knowledge
societies, many grow up taking survival 4 granted. Priorities shift ffrm emphasis on econ & physical
security to subj well-being, self-exp & quality of life. Self-exp: high priority 2 environ protection,
tolerance of foreigners, gays, les & gender equality & rising demands 4 participation in deicison-
making in econ & political life. Shift in child-rearing values from emphasis on hard-work to on
imagination & tolerance as impt values to inculcate in a child. Ppl place high value on ind freedom
&self-exp, have activitst political orientationssame attributes defined as crucial 4 democracy.
Und of democracy: correlation btwn mass self-exp values& democratic institutions in society is strong
& consistent. In the LR, process of intergen pop replacement tends to make self-exp values more
widespread. Countries w autho regimes likely to become more liberalized in the next 15-20 yrs.
Empowerment: democracys essence is the empowerment of ord citizens. Each of these 3 elements
action resources, self-exp values & democratic institutions empowers ppl on a diff lvl. Action
resourcesmaterial/cognitive resources like education & skills tht help ppl govern their lives.
Modernization incr ppls econ resources, brings rising educational lvls tht help move ppl into
occupations tht req indpt thinking, making them more articulate & better equipped to partake in
politics. Human development: Econ devinc resourcesself-exp valueseffective democratic
institutions.
Globalisation, gender & converging values?: Globalisation shld lead to a convergence of values but
data frm 20 countries show tht from 1981 to 2007 almost NO evidence of a convergence of values.
Support 4 gender equality not just a consequence of democratization but part of a broader cultural
change tht is trans indus societies & fuelling mass demands 4 incr demo insti.
Culture, diversity & religion: secularization theory modernization & rising lvls of human security are
said to cause declining lvls of religious involvement tog w a more skeptical view of religion impacting
politics. Modernization brings about cultural diversity as well that leads to more religious involvement
& more positive views of religions impacting politics. 2 schs of thought.
Rising insecurity & values: est stable demo under severe exisitential insecurity extremely difficult.
Stable, effective demo generally emerges through a process of human dev tht starts w econ dev &
leads to a culture of tolerance, trust & emphasis on human autonomy. Socioeconomic dev brings
shift frm xenophobic & authoritarian outlook linked w survival values towards inc tolerant&
democratic outlook linked w self-exp.
The System That Soured: Toward A New Paradigm To Guide Japan Policy
By Richard Katz
Ames policy towards Japan is special because for the past 2 decades it has 2 opposite paradigms
Revisionism & Traditionalism BUT neither could predict/explain in hindsight how e greatest econ
miracle of post-war era stopped dead in its tracks suddenly. Neither offers reliable guidance on how
to respond to Japans current payalysis.
Revisionists argued Japans econ system was so diff, so superior, so threatening tht extraord remedies
needed while traditionalists argued tht no special measures needed bcuz japan followed same free
mkt & free trade patterns like in US.
Japans past econ success based on high savings, tech, hard work and fierce competition as individuals
& enterprises responded to tht opportunities provided in quite free mkts for commodities & labour.
Neither revisionists/trad can suggest good way for US to get Japan to stop wasting time/reliably
indicate what is (not) achievable.
Need a new paradigm to guide policy and in katz opinion, such a paradigm wld include these
elements:
1. A system that soured economic model: Japanese econ model was a good mechanism for turning a
poor country into an industrial powerhouse in record time, but became counterproductive once japan
achieved econ maturity.
2. Governance by negotiation political model: japans political system allow all the special interest
Lilliputians to secure the nat int in millions of tiny threads; helped to ensure tht rapidly growing econ
pie shared by all. But it has left govt unable to shift gears even when vital nat int demand tht it
overrides all special int. Unable to end its obsolete industrial policy regime in the 1970s, has trouble
introducing mkt economics & competitive politics today.
3. A Road Map To The Political Dynamics Of The Future: powerful int forces seeking major renovations
in both economics & politics, incl more mkt-opening to e outside world.
4. A Guide To Policy
The govt help create a fav supportive biz climate tht did not exist in most countries and this was taken
for granted (1) banking credit backed by govt made heavy capital investment possible (2) govt was
deeply involved in planning tht they targeted growth industries, set production goals and est foreign
mkts. Growth rewarded w high dep, cheap loans, subsidies, light taxes (3) Infant industries protected.
In the high growth era, major decisions regarding what industries existed, what coys entered those
industries, whr investment lvls & pxs shld be and how to save jobs in declining sectors shaped by
negotiations + lobbying rather than mkt/bureaucratic effect.
Both schools of thought assumed tht the political process in Japan auto allows the country to shift
gears in accordance w changes in the national interests. Revisionist: bureaucracy und nat int imposes
itself on a Confucian society which willingly submits to rule by the madarins. Trad: survival of the
fittest scene. In reality, japan politics is complex; governed by negotiation, which combines heavy govt
intrusion w powerful societal pressures on the govt and consensus politics tht virtually force Tokyo to
accommodate all special int.
Currency rationing: to produce industrial o/p, need to have foreign tech & thus need foreign currency
for royalty pmt. Until system ended in 1964, power to allocate/deny foreign exchange was the power
to det which industries/coys got off the ground. MITI usually tries to limit entry to a new ind but
political lobbying made such fine-tuning impossible. Once MITI designated an industry as strategic,
major firms had a virtual guarantee against bankruptcy and thus such industries attracted far too
many entrants to maintain EOS. MITI oft unable to resist when each powerful keiretsu lobbied for its
own contender. If growth & inc in efficiency fast enough, as s the case in the catch-up era, policy
worked out. In other cases, it led to costly white elephants. Govt authorized firms to form cartels to
avoid bankruptcy during periodic downturns/bouts of excess capacity. Rationale was to reduce risk,
inducing firms to invest in higher rates. Cartels fixed pxs and imposed limits on capacity and o/p.
however, during slumps, production quotas assigned pro rata based on mkt share and everytime
industry recovered, firms raced to build new capacity so as to enlarge their shareanother cycle of
overcapacity and need for another cartel industries such as shipbuilding, cement, chemicals, steel,
textiles, machinery, electronics. Cartels limited px competition & helped incumbents keep out
newcomers. Overtime economy became incr cartelized, esp among least competitive sectors mkt
det px didnt prevail.
Ability to finance a proj decided by politics, not CF proj.
Governance by negotiation: Strategy vs Competition: small biz were one of the losers to be
compensated. LDP dist billions of $ disguised as no-collateral govt loans to > hald of the nations small
biz. Fin Ministry overlooked large-scale tax evasion by small biz as much as 40% of income. Large-scale
retail store law enacted, allowing small retailers to obstruct expansion of department stores, enabling
them to raise px. LDP bought votes w subsidies by e 1980s, more than 75% of all farm income come
frm subsidies & px support prog. Tokyos pro-growth policies gave aid to key X industries while its
anti-growth policies handed out heavy subsidies and abundant govt loans to preserve employment in
flagging sectors. Balanced shifted frm former to latter overtime.
Need compromisecomplianceconsensus
Why the system soured: as long as strat & compensation remained in balance, system worked but in
the 1970s, demands for compensation rose beyond ability of econ to meet them. As japan econ
matured, no more infant industries. Japan refused to let go of the ind policy model. Tactics of
protection were now used to shield losers frm competition at home & abroad. Japan became a
deformed dual econ: fxnal hybrid of super-strong Xing ind & super-weak domestic sectors. Many of
japans efficient exporters fled offshore.
Coys still rake in cash and pile up biz savings but they have fewer outlets for profitable investments
within japn.
Rise of Tanaka: Compensation Seizes The Throne: workers cried out for relief and it was given as in
the 1970s, LDP was also facing a political crisis. LDP found a way to appeal to rising new demographic
grps fromed by urban white-collar salary men + bue-collar workers hit hard by the 1970s downturn
but at a huge econ costs- solution was the corrupt money politics of Kakuei Tanaka. In 1972, over big
biz obj, LDP made Tanaka PM. By elevating e Tanaka faction, japans leaders greatly exacerbated
ability of small int grps to hold entre nation in thrall. Up until e 1994 electoral reform, LDP cld remain
in power bcuz of japans unique electoral system. Each district in Japan elected 3-5 members of the
Diet, w every voter getting one vote. A diet member can win election w only 15-20 % of votes vs 51%
in most countries. This system the opposition. However, this system promotes parochial thinking and
vested int. the key to winning is by assembling org of personal support grps Koenkai instead of
focusing on national issues. Ind diet members secure re-electio by mediating w the ministries to
secure goodies for their koenkai. With arrival of Tanaka, Koenkai moved up. Political compensation
became the focus trad govt loans to small biz, farm px supports, construction proj, expensive prog
intro to satisfy demands of urban middle class like health insurance, social security, education, parks,
anti-pollution measures. Tanaka pressured BOJ to print more money 30% inflation1st
bubblebudget became a deficit. Another method to support the koenkai was to charge high px in
the pte mkt, allowing Japans inefficient sectors to charge monopolistic px& maintain employment.
Following elements are part of the rd map the new paradigm gives us:
(1) Japan cannot rec econ w/p major structural overhaul tht goes far beyond dereg
(2) Political obstacles to reform are so great tht thorough reform will take years: obstacles crowd of
special interests
(3) Japans present political leadership is incapable of instituting needed reform and instead tries to
muddle through.
(4) Muddling through is untenable (Unable to be maintained), it just sends Japan lurching from crisis
to crisis
(5) Cracks in the web of mutual support are widening
(6) Ultimately to solve the prob, thorough political & econ reform will need to happen.
(7) Most likely supporters of reform are those forces rep efficient part of dual economy, like Xers,
urban middle class, enlightened bureaucrats, academics.
(8) None of this implies tht Japan is abt to embrace the Ame model
What can US do? They hve to recog that Japan will be adrift 4 yrs to come but tasks of helping Asia
should not be avoided/delayed just bcuz japan is paralysed. Recog Japan is gridlocked doesnt mean
accepting itseek enggment by Japan. LT reforms in financial sector and retail sector. Money show
flow on the basis of real return rather than outdated keiretsu ties. Us can help shorten yrs of reform.
Us needs to find & focus on items whr its own desire 4 mkt access coincides w reform agenda of
powerful forces within japan & whr such changes create powerful systematic ripple effect.
Why Democracy Still Wins: A Critique Of Eric X. Lis A Tale Of Two Political Systems
By Yasheng Huang
Based on data, countries transition to democracy as they get rich.
Of 25 countries w higher gdp per capita than china tht are not free/partially free, 21 are sustained by
natural resources proves the 1st pt.
Li cites transparency international index (TI) to support his view tht demo are more corrupt. Huang
however, thinks tht IT is a product of demo, which underscores tht we know more abt corruption in
demo than in authoritarian countries bcuz demo are by definition, more transparent & they have
transparency data. Li pts out tht Argentina & Philippines are both demo & corrupt but he failed to pt
out ttht in 2013 they were democracies but they have been ruled by ruthless military dictators 4
decades b4 the transition. The autocracy of these countries bred corruption. Legit to criticize new
demo 4 not rooting out corruption timely but not legit to confuse it w demo being e cause of
corruption. World league of e more egregious corruption offenders belong to autocrats Suharto,
Marcos, Mobutu.
Li states tht chinese system enjoys support among pop by citing high % of ppl optimistic for future.
But in a country w/o free speech, survey answers are biased. There are political pressures tht tend 2
channel ans in a particular direction.
Li states tht ccp self-corrects itself but almost every single policy change Li id in his talk was made by
the successor 2 e person who initiated e policy tht got corrected. Self-correction implies a deg of
voluntariness on part of the person making the correction, not lackof alt other than making the
correction, as in China.
E only authoritarian regimes tht go w/o suffering an explicit fin crisis are centrally planned econ i.e
Romania & East Germany bcus they failed 2 meet a min cond for a fin crisis have a fin system.
2 academics david lake & matthew baum show tht democracies are superior in prov public svcs.
Li blames low growth in Eur and US on demo but demo countries are richer, much harder to grow at
the same rate as the poor.
Chinese have accepted many foreign concepts/prac alr.
There is nth fundamentally incompatible betwn chinese culture &democracy. HK, has press freedom
& rule of law tho w/o electoral demo system, no evidence place has fallen into chaos.
Li objects to many mechanics of demo. He objectst to voting when it is a way to implement the prac
of democracy but he endorses in-tra party democracy BUT how to w/o voting?
Democracy can tame violence as well. Democracy has many probs but the insurance fuxn makes it
superior.
Law, Finance And Economic Growth In China
By Frankin Allen, Jun Qian & Meijun Qian
China impt counterexample to findings: neither legal/fin system well dev yet it has one of e fastest
growing economies. The law-finance-growth nexus applies to the state & listed sector. Arguably,
pooer applicable legal & financial mechanisms pte sector much faster & prov most of the econs
growth. Imbalance among 3 sectors suggest alt financing channels & governing mechanisms such as
those based on reputation & r/s, support e growth of the pte sector.
La porta, lopez-de-silanes, sheifer, vishny (LLSV) & others prod empirical evidence tht links origin of a
countrys legal system to countrys institutions & financial & economic outcomes. One result of study
is tht countries w Eng common-law origin prov strongest legal protection to both SH & creditors, have
better institutions, less corrupt govt, more efficient courts, more informative accting stnd. Better legal
protection & better institutions lead to better outcomes 4 the financial system. 2 nd strand of literature
is of the view tht dev of a fin system tht incl a stock mkt & intermediation contributes to a countrys
overall econ growth. 3rd strand: prov evidence for the link & causality among law, finance & EG at
country, industry & firm level.
Examine 3 sectors of chinese econ: state all coy tht govt has ultimate control (SOE), listed listed on
an exch & publicly traded, pte sector other firms w various types of pte & local govt ownership.
Chinas law & institutions, incl OR protection systems, corp govt, accting stnds & quality of govt sig
less dev than most countries in the LLSV. Chinas fin system dominated by large but underdev banking
system mainly controlled by 4 largest state-owned banks.
State sector shrinking due to ongoing privatisation process, which incl firms gg public. Results: equity
ownership is conc within the state for firms converted frm the state sector & founders familites for
the nonstate firms. Corp govt are weak in listed sector. Dividend ratio & firm value of Chinese are low
compared to similar firms operating in countries w stronger OR protection, consistent w LLSV
predictions.
Results: on a survey of 17 entrepreneurs & exec, 2 most impt financing channels for pte firms during
their start-up and subsequent periods are financing intermediaries, incl state-owned banks & pte
credit agencies,, founders friends + families. Most loans frm fin intermediaries secure by fixed assets/
3rd party guarantees. During firms growth period, funds frm ethnic chinese and trade credits impt.
Going public has benefits of incr reputation and access to large scale funding but risk disclosing info to
competitors/outsiders and incur large amt of fees. Alternative mechanisms, due to absence of formal
govt mechanisms have been effective in pte sector. Role of reputation & r/s. most impt force shaping
chinas social values and insti related to Confucius define family, social order & trust. Another
mechanism tht drives good mgt & corp gov is competition. Firms have strong incentive to gain
comparative adv given low surivival rates during early stages of dev. 3rd impt mechanism: role of local
govt support & partake in growth of pte sector firms.
Differences among 3 sectors challenge law-and-fin view tht it is the legal origin tht cause the diff in fin
systems and the fin-and-growth view tht it is the dev of stock mkts/banking system tht cause diff in
growth of firms/econ and challenge the view tht ppty rights and lack of govt corruption are crucial in
det fin & econ outcomes.
Evidence on chinas legal & financial systems and growth in the 3 sectors: majority of LLSV countries
have better sh & creditor protection than in china but a more impt measure 4 china wld be law
enforcement rule of law & govt corruption chinas measures sig below LLSV countriessuggest
that scores of creditor and SH protection of china unreliable. Chinas legal system isnt ahead of any
other major emergin econ & is dominated by those tht have eng common-law origin. China ranks
poorly in terms of polticial freedom + ppty protection rights and thrs a positive correlation betwn
political freedom & measures of econ freedom. Judicial indpt acct 4 positive effect of common-law
legal origin on econ freedom. But fact tht china scores poorly but still grow fast cast doubt on impt of
political freedom + econ freedom in LLPS. China lack indpt, prof auditors embezzlement of coy
assets/fraud may occur more freq under IAS-based stnd compared to alt system w much simpler set
of accting stnd. Size of countrys equity mkt & banks relative to gdp: china has smaller compared to
other countries but its total bank credit to gdp was higher. When consider bank credit to pte sector
only, ratio drop, suggesting most bank credit is issued to coy in state/listed sectors. China has
dominance by banks over mkts stronger than llsv countries. Chinas stock mkt are relatively more
efficient thank banks as well due to high overhead costs of chinas banking system. Chinas fin system
is smaller and less efficient. Scale and relative impt of chinas ext mkt not sig. Underdev legal
systemsmall ext mkt. LLS result on the negative relation btwn govt ownership of banks & growth of
a countrys econ seem to apply to chinas state sector; this has not slowed down growth of pte sector.
Prob for state-owned banks are NPL made to SOE, due to political/nonecon reasons. Chinese govt
take active measures to rectify issue: 4 state-owned AMcoy formed to assume NPLs and liquidate
them, improved loan structure by incr loans made to indi lenders while being more active in risk mgt
and monitoring of loans made to SOE, growth of non-state finan intermediaries.
Pte sector dominate the state/listed in terms of size & o/p & growth trendpte sector more
productive. Pte sector impt source of employment oppor
Chinas 4 most impt financing sources for all firms in China, in terms of fixed asset investments: bank
loans, firms self-fundraising, state budget, FDI. Pte sector relies more on self-fundraising less strict
legal & financial mechanisms. Dev of chinas ext mkts relative to its overall EG is not dramatically diff
frm other emerging countries. Common pattern is tht dev of ext mkts trails growth of overall
economy, given tht deve of these mkts req a min efficiency for a countrys institutions inclu legal
system, accting stnds, dev of associated professionals. Early stages of growth in contrast, need only alt
insti and mechanisms to support growth of firms and and overall econ.
Corp gov is extremely weak for listed sector. 2-tier board structure: bod and board of supervisors
ranking above directors, usually officials chosen frm govt branches/exec frm the parent coys while
bod controlled by firms parent coys. Incentive pay rarely explicitly specified. Cross-holdings of shares
among listed insti make hostile takeover impossible. Ineffective bankruptcy implementation. Govt
plays dual roles of regulator + blockholder of many listed firms. Doubtful tht top officials elected by
govt pursue their fiduciary role as sh.
Firms w poorer protection of outside sh/agency prob like in china have lower div ratio and lower
tobins q ( mkt-to-bk asset ratios) for listed sectorLLSV predictions work well for listed sector.
Pte sector: (1) Wenzhoustart as fam-run biz in townships w a similar pdt emphasis to have easy
access to needed tech, human capital and potential cliemts/partnersspecialisation by
regioncompetitive. Certain developed areas shifted pdt emphasis frm labor-intensive to high-tech
pdt. Failure rate for start-ups high. New pdt strat oft start w mimicking successful/pop pdts. Patent
laws diff to implement and disputes settled among themselves. Some entrepreneurs overcome this
prob by spending more effort money to ensure key parts of their new pdts diff to disassemble and
copy. Another prdt strat is to export their pdts to other regions. (2) Kunshanattract FDI w special
dev zones and fav land and tax policies. Centre in a special zone est by local govt for liaison bwn local
govt, entre, foreign ORs, regulators, svc providers. During early stage of special zones, ORs frm Taiwan
willing to commit their capital & refin them when needed due to many Kunshan citizens having
relatives in Taiwan. Taiwanese und tht altho there are almost no formal OR protections, local govt
officials have incentive to coop w dev of special zone & 2 try to create an econ boom in local econ as
it will enhance chances for promotion, and increases profits in profits-sharing. In the start-up stage,
funds frm founders and friends re an impt source of financing. Funds frm friends in the form of pte
loans& equity are also impt in subsequent growth period. In some cases, there are no formal written
contracts between friends/ORS and entre reputation & r/s based implicit contractual agreements
worked effectively. Internal financing (Retained earnings) also impt. Financial intermediaries also impt
source of funds but not clear tht state-owned banks bt not clear if state-owned banks prov cheapest
start-up financing channel since all surveyed firms tht rec start-up fin frm state-owned banks alr est
close r/s w those banks b4 inception. Financing frm pte credit agencies (PCAs) most imt channel
during growth period. Fixed assets most pop form of collateral followed by 3 rd party guarantees.
Success of pte sector dept on support from the govt as govt widely regarded as corrupt/disrespectful
of ppty rights.
If coorp among diff supplier of inputs needed and all suppliers benefit frm the firm doing well, a gd
equilibrium w no ext govt is possible as internal, mutual monitoring can ensure optimal outcome.
Family-run firms emerge as dominant form of ownership structure in countries w weak minority SH
protection. While professionally managed firms must be optimal form in countries w strong OR
protection. Common goal of sharing high prospective profits align interests of local & foreign
ORsimplicit contractual agreements + reputation act as enforcement mechanisms to ensure all
parties fufil their roles to make firm more successful. In china, belief tht change shld be gradual and
implemented when proven to be correct. China adopts a gradual dual track path whr cont
enforcement of existing planning system goes with fast-paced dev of financial markets. Govt
supportive in china to promote growth of pte sector, diff from grabbing hands in other countries due
to : mandatory retirement age for all bureaucrats which made officials younger and more familiar w
capitalist ideas, TVEs township village enterprises where local govt are partial owners prov most impt
source of growth in pte sector, profit-sharing w firms in multiperiod setting makes it incentive
compatible for officials to support growth of firms.
Changes To The Ownership & Control Of East Asian Corporations Between 1996 Ans 2008: The Primacy Of
Politics
By Richard W. Carney And Travers Barclay Child
1386 publicy traded coys end of 08 supplemented w existing data on 1606 publicly traded coys end of
1996. 2 main findings: (1) Where status quo political arrangements persist, preexisting ownership
arrangements go unchanged/ become more entrenched. Whr major political changes occurred, corp
ownership wld undergo substantial changes (2) State has become incr impt as an owner of domestic
firms as well as foreign firms.
Major changes along period: SK implemented substantial corp gov reforms, HK became special
administrative region of china, Indonesia initiated impt demo reforms, thai lurched frm one regimet
to another.
Collect data on 9 countries largest publicly traded coy HK, indo, japan, SK, msia, Philippines, sg,
Taiwan, Thailand. Study proves tht major political transformations best acct 4 changes.
Data in 08 mirrors data set of claessens, djankov & lang w respect 2 variables & sources used so as 2
ensure consistency.
East asia useful region to study changes to corp ownership across time bcus large data set tht exists
b4 asian fin crisis + insti changes tht subsequently happened. 08 is a useful pt to examine whether
changes has occurred bcus sufficient time has elapsed since crisis 4 new arrangements to consol their
positions.
Find tht family control remains most dominant form of ownership across east asia, though widely
held ownership dom in japan, Taiwan & substantial in korea, thai. Philippines largest inc in family-
controlled firms while Taiwan largest decline. State control become part impt to sea countries in 08,
incl hk, sg, msia, indo, exhibiting largest incr. Foreign state ownership become evident for firms in
nearly every country. Separation of ownership & control undergone lil change 4 region & remain
highest among family-contr firms.
Control thru pyramid structures fallen while among firms w a dominant owner,increase in no
controlled by a single SH. Separation of mgt frm ownership contr remains rare. Top mgt of abt 71% of
firms not widely held in 08 is related to fam of controlling SH, abt the same in 1996. Among firms w a
dominant fam owner, ave no of firms belonging to a single family/ top families remained relatively
stable overtime. Political links of firms declined in general while the no of firms aged 25 & above
(proportion of all fam-owned firms w heirs @ helm) increased generally. Firm age corresponds to a
greater likelihood tht an heir likely to take over frm the founder.
Construction of data: take largest 200 publicly traded firms ( in terms of mkt cap) frm each countries
respective stock exch end 08. Include data for 200 largest firms 4 each country listed in CDL set.
Gather ownership data. Intermediate non-publicly traded firms present are either state-owned,
family-owned, EE-owned/ subsi of public/ other non public corp. to resolve ownership
structreannual reports of downstream publicly traded firm whose ownership trying to reveal,
website, stock exch filings indicating transfer of share ownership to id ultimate owners, biz reports/
newspaper articles. Data for 1386 firms collected using 20% share threshold to define coy ownership.
10% threshold reduced firms to 1296. All sh can be traced abt a given ownership threshold (5%).
Include some firms tht are exceptions: (1)If owner whose id cant be traced but detailed info on a
larger owner who claims more than 50% of coys stock. (2)If there exists share blocks whose owners
cannot be traced due to their share being held via a nominee/trust acct but whose total sum <
proportion of shares held by a revealed owner whose id we are able to trace all these cases we are
still able to id largest SH. Eg of exception (1): mandom Indonesia tbk pt; coy owned by mandom corp
japan; able to trace stake of 11.31% held by pt asia jaya paramita. (2): sg technologies engineering ltd;
sg govt holds 49.32% of outstanding shares in coy. 3 other share blocks tog acct 4 32.66% held by
nominee acct. Eg of coy excl frm sample due to them not being exception 1: Citiseconline.com of the
Philippines (2) Thai chemical public company ltd. Bias likely intro by excl firms whose largest owners
hold shares thru nominee acccts/ holding coys whose ownership structure not being discerned.
Aggregate measure offers most useful comparison of sh transparency across countries as it captures
use of both holding coys & nominee/trust accts as opaque ownership vehicles. Sg and Philippines rank
lowest 4 transparency measured this way. In 1996 also, bias is against uncovering family ownership.
Same conclusion for 08 as most the time AR/ Stock exch filings show tht most nominee acct holders
have been found to be an ind/family. Families & ind have largest incentive to hide control of coy
through use of trusts/nominee accts/shell holding coys. Another bias: reported incidence of widely
held corp likely overstated w incidence of fam-owned coy understated. Gather info on top exec of
firms in data set to check if they are affiliated w firms ultimate owner and build fam trees 4 major bi
grps. To examine changes of crony capitalism: gather data on political ties of firms tht are predom
family-owned, supplement data w names of bod of fam-owned firms and politicians in both exec and
legislative branches of govt. investigate m&a, take historical data to track emergence of corp in data
set. Variables: focus is on ownership type based on control rights. To enable comparison w 96 data,
grp ultimate owners into- ind, fam/domestic govt, widely held fin insti, widely held govt, foreign govt.
one of the above grp deem to own a firm if prop of outstanding shares exceed working threshold of
10/20%. If 2 such ultimate owners, report subj firms to be half owned by each. Control rights =prop of
outstanding shares through which voting power can be exer directly/indirectly by ult owners. Report
level of control exer through a given ownership channel to be lowest shareholding denomination
across tht chain of ownership. Cal largest owners cf rights which differ frm control rights in tht they
reflect level of fin stake in corp. CF rights of owners are considerably diluted due to multiple
intermediate SH firms along the line of ownership. Study of pyramids- value of 1 if there exists @least
1 publicly traded corp within chain of ownership & 0 otherwise. If largest sh hold any portion of it
share through an intermediate publicly traded firm=pyramid. Cross-holdings also captured-firm holds
a stake in one of its shdecreased frm 96 to 08. Last measure: if top member of corps exec board is
affiliated w ult owner perf 4 firms tht are held by fam, widely held fin ins& corp .affiliation value = 1 if
top exec related by blood/marriage & 0 otherwise. If top exec has been in his immed preceding
employment been employed by controlling firm = 1. Changes stem within many prev listed corp incl in
96 and frm emergence of new corp over this time period. Reasons given 4 firms tht were in 96 data
set but not in 08 data set: not top 200, firms gone bankrupt/delisted 4 fin reasons/govt or fam
buyout/firms bought out & delisted by a publicly traded corp. Firms are considered to be politically
connected if one of the coys large sh is a govt agency/ministry/@least one of coys directors is a
member of parliament/minister/head of state/close relation spouse, child, sibling, parent, close
friend. Include foreign politicians & ppl assoc w a political party/govt official.
Changes to control of largest publicly traded coy in east asia: @10& curoff, fam ownership dom type
for both yrs but in 1996 widely held ownership dom in japan, sig in korea, state ownership impt in sg,
msia, indo. In 08, widely held ownership cont dom in japan, sub in jorea but become most impt for
Taiwan, incr markedly in thai. State ownership inc in msia, hk. Foreign ownership: thai & indo had
highest level. 20%: fam ownership dom across both time periods, moreso in sea than nea. Prop of
widely held firms higher in nea 4 btoh time period and higher modestly in sea. Hk largest inc for state
onwed. Family ownership decr modestly aggregate while state ownership increased. Widely held
ownership incr while whide held financial & corp ownership declined. Ownership changes cld be due
to : (1)Ownership characteristics of firms in 96 changed or (2)New firms in 08 sample displaced some
firms in 96 sample. Incr imptance of state is due to relatively large no of fam dom firms tht become
statw owned and large no of newly listed state owned firms. Data 4 indo reveals relatively large no of
fam dominated firms came under control of foreign state/delisted due to fin. (former complsed of
major indo banks taken over by govt following fin crisis in 1997 where 6 banks underwent merger).
Ownership structure in japan stable. Korea: large no of widely held firms become dom by fam
ownership and large no of fam dom firms in 96 underwent m&a. msia: change of ownership of 10
firms frm fam to state owned in 08. Philippines: none of fam-dom firms delisted, many widely held
firms become fam dom as of 08. Sg: large no of m&a of state dom firms, fam & state dom constituted
largest share of newly listed firms. Taiwan: move away frm fam dom, towards widely held ownership.
Thai, many firms delisted, move to widely hekd ownership, sg govt held sub ownership stke in 10
firms while msia govt retained sig ownership in 2 firms. sg invested 26 firms in indo, 1 in korea, 4msia,
5 philippines, 10 thai, china 11.
Changing characteristic of fam owned firms & their political ties: examine 3 sets of indicator regarding
firms w dom fam owner: (1)Conc of corp ownership in hands of fam (2)Prevalence of founders vs heirs
(3)Incidence of political ties among fam-owned firms. Korea has largest inc in ave no of nations
largest firms in hands of single fam while most countries seen a decline, consistent w expectations
govt a growing exon w inc no of publicly listed firms. Conc of control in hand of largest 10 fam seen
decline for most countries except korea again. Decline for connections involving directors and state
ownership, w most dramatic reductions in sg,, indo, korea, thai. Korea is due to backlash of the
chaebols while sg due to reduction in no of publicly traded fam owned firms in which state has an
ownership stake. Indo due to fall of suhartos regime. Thai due to political changes. Incidence of crony
capitalism to have fallen but it could simply have changed frm more overt to opaque mechanisms.
Menas of enhancing control: pyramids declined in sg, indo, Taiwan while incr in korea, thai.
Correspondence betwn control & mgt high for both times, w largest inc in hk, japan, Philippines and
dec in indo, msia.
Changes to sep of ownership and control: overall inc in conc of cf rights in indo, japan, Philippines, hk,
sg, thai (small change). Changes in conc of control rights show similar pattern. Ratio of cf to control
rights nearly same at both times, w thai largest inc followed by korea and decre in japan. Sep of
ownership&control 4 fam-controlled firms remained nearly the same, biggest changes happened for
other ownership types whr it incr for state-owned firms followed by firms where dom owner is a
widely held corp. greatest level in 08 are firms w foreign owner as a dom owner.
Political trans &ownership changes: sig changes to structure happened only when dramatic changes
in political system happened. In hk, handover to chinaincr in state ownership. Indo, Suharto regime
endnew constitutiondemocratising directiondecline in fam ownership. Taiwanend of
Kuomintangdemocracy. Thai 1997 constitutiondemocracyfall in fam ownership, inc in widely
help ownership. In japanno major political changes. Koreapressure to reform corp govt policies
but did not exp major dom political changes in terms of new institutions/shift of power away frm long
dom partyfam ownership dom in both periods followed by widely held. Msia: mahathis Mohamed
ride out crisiscent and authoritarianhigh state ownership in both times. Philippines: prob not as
severe. Not much change. Sg: relatively unscated by crisis.
Fam control most impt. State hk. Indo firms- fam. Japan-widely held. Korea-fam dom, widely held.
Msia-state intervention. Philippines- fam control. Sg- mix of family & state ownership. Thai-widely
held ownership. Thai-away frm fam dom, to state.
The Mirage Of Marketing To The Bottom Of The Pyramid: How The Private Sector Can Help Alleviate
Poverty
By Aneel Karnani
Fortune at the bottom of the pyramid: eradicating poverty through profits book by C.K. Prahalad
propositions:
- untapped purchasing power @ bottom of pyramid (BOP)pte coys can make profits by selling to
poor
- By selling to the poor, can bring prosperity to e poor, help eradicate poverty
- Large multinational companies (MNCs) shld play leading role in process of selling to the poor.
Prahalad argues tht selling 2e por is both profitable & eradicates poverty.
This paper argues against prahalad proposition: lil fortune @ bop & argues bop proposition is logically
flawed, inconsistent w evidence. Study propses alt perspective on how pte sector can help alleviate
povertyview poor as primarily producers rather than consumers. Real way to eradicate poverty is to
increase REAL income of the poor.
Target mkt: both prahalad & paper uses definition for poverty as $2/day at purchasing power parity
(PPP) rates in 1990 prices. At this lvl of poverty, basic needs are met but barely. Prahalad overest bop
potential mkt at $13trillion ppp while ave consumption of poor is only $1.25/day. Assuming 2.7bn
poor ppl, this means a bop mkt size of $1.2trn @ ppp in 02. If look at it whr profits repatriated back at
fin mkt exchange rate, not PPP rates, global mkt is < $0.3 trn making bop a diff place to look for
fortune.
No fortune: costs of serving bop high due to increased dist & marketing costs because poor are oft
geo dispersed & cultural heterogenous. Also, diff to get EOS. Weak infra & small size of transactions
further adds on to costs. Poor ppl are px sensitive spend abt 80% of Y on basic needs, leaving little
left for luxuries. Coys following bop proposition oft fail because they overest pp of the poor & set px
too high.
Cases claimed to support the BOP proposition:
1. Casas Bahia:
- Large retailer in brazil selling top-quality brands like Sony, Toshiba
- Argued tht poor ppl do desire quality pdts BUT cant afford them
- Ave income of consumers abt x2 min wage, so NOT really BOP consumers as it is well above $2/day
poverty line.
- Thus, highly profitable coy has lil to do w bop proposition.
2. Iodized Salt:
- Effective/inexp way to prevent iodine deficiency. Some iodine in salt lost in storage, transportation
& cooking processes. HLL (Hindustan Level Ltd), indian sub of Unilever dev a proprietary mirco-
encapsulation tech to stabilize salt content in saltAnnapurna salt. Fact is penetration among poor
still lil due to 275% px premium of salt, many ppl dont see it as a bargaindont support bop prop
3. Ice Cream:
- Amul, a large indian coorperative ofund instant mkt in 01 when it intro ice-cream @ affordable px.
- Before Amul, HLL was largest firm in mkt due to radical innovation which allow ice cream to be
transported cheaply w/o need for refrigeration which allows it to reach BOP mkttruth however is
tht on top of cheaper ice cream, HLL decided to compete on diff in 02 in 6 cities onlyfirst profit.
Single serve revolution: A Dud ( a thing tht doesnt work properly/ is unsatisfactory or worthless):
pioneer CavinKare who intro shampoo sachets. Approach to encourage consumption & choice at bop
by making unit packages tht are small & thus affordable BUT claim of affordability is falsecoy may
prefer to sell smaller packages w lower profit margin 2 encourage sampling, poor might prefer small
packages due to convenience & mging CF; Poor may not have enough to buy a whole bottle of
shampoo & can thus buy sachets for occasional use; this does create value for poor and can lead to
increased consumption. Small packets facil impulse buying also & consumers may be fooled into
thinking tht smaller px 4 smaller packages are truly cheaper BUT these DOESNT increase affordability.
Only way to increase affordability is to reduce px per use but since pdts sold @ exactly same px per kg
as bigger packages, affordability is nt increasedexplains annapura low mkt penetration & success in
niche mkts like college students. Single serve packages has environmental consequences due to
plastic packaging which is exacerbated in poor villages whr trash collection facil are inadequate.
Prahalad dismisses this prob by arguing tht coys have incentives, resources to tackle the prob but 20
yrs have gone by without much improvement.
Financing schemes: Casas Bahia prov credit for consumers even when their income streams may be
unpredictable & low. This prov consumers with access to high-quality pdts who could otherwise not
afford them BUT prov credit doesnt change affordability of pft even tho it prov other value to poor-
instant gratification with int rate of over 4% per month. True tht consumers lack access to efficient
credit mkt and int rate charged lower than moneylenders but doesnt change the fact tt affordability
(Fxn of price of pdt) is not addressed.
Role of MNCS: bop proposition tht mncs shld take the lead to sell to poor but mkts for poor dont
have sig EOS as they are oft geog, culturally fragmented. Pdts sold to poor are oft less complex,
reducing scale econ in tech & operations. Interesting (Sarcastic) tht despite BOP emphasis on MNCs,
eg cited in Parhalads books are fairly small/local org, not MNCS. Maybe through experience, MNCs
have realized tht there is no fortune at BOP/ they have no competitive adv thr & thus avoided major
investments. May be a gd thing since MNCs may inhibit emergence of local pte enterpreneurs who
proc econ + non-econ benefits to society.
Harmless illusion OR Dangerous Delusiom: there are rare success cases of selling to the poor. Another
interesting thing (sarcastic) is the proposition emphasise opportunities for sig profits & yet cite many
supporting eg of not-for-profit org & prahalad rejects corp social resp as basis for bop initiatives.
Exploitation of the poor: true tht increased variety can increase welfare of the poor. However,
increasing expenditure on luxurious pdts means less to spend for other pdts tht meets basic needs.
Truth is, poor is more constrained by lack of income than by lack of variety of g&s offered. If poor is
deceived by mkting/poorly informed, bop initiative might even lower welfare of poor. Poor might end
up purchasing lower priority pdtsprahalad dismisses such argument as patronizing and arrogant:
how can anyone else but the poor decide whats best for them? (poor have rights to judge for
themselves how they, as value-conscious consumers want to spend their money to maximize their
utility). HOWEVER, poor are vulnerable due to lack of education, info & econ, cultural, social
deprivations. A persons pref is malleable & shaped by backgrnd + experience. Need to look beyond
expressed pref & focus on ppls capabilities to choose the lives they have reason to value. Banerjee &
duflo show, in a survey, ppl cld save more w/o getting less nutrition by spending less on alcohol,
tobacco, food items like sugar, spcie & teadata suggest poor, just like the rest lack self control, yield
to tempt & spend to keep up w neighbours just tht the consequence for them are more severe. More
often than not, poor make choices which are not in their own best int.
Poverty & alcohol: poorer ppl spend a greater fraction of income on alcohol than less poor. Alcohol
has high direct fin costs, econ & social costs (dim work productivity, health, accidents, dom violence,
child neglect). Alcohol exacerbates poverty. Poor cant make decisions to for their best interests.
Whitening cream: racist & sexist prejudices lead women to use skin-lightening pdts tht sometimes
have negative health side effects. Hammond & prahalad argues tht poor women have a choice & feel
empowered bcus of an affordable consumer pdt formulated for her needs but THIS is an illusion. It
serves to entrench disempowerment. The way to empower a woman is to make her fin indpt & better
educated need social + cultural changes tht eliminate prejudices. Shld impose some constraints in
terms of truth in advert + full disclosure of ingredients used in pdts + negative side effectsmore so 4
ppor who lack info & education needed to make well-informed choices.
Lower prices/ Raise income: only way to help eradicate poverty is to raise real income by either
lowering prices of gds consumers buy or raise their income earned. Px reductions must be over 90%
to have sig impact on purchasing behavior of the poor. 3 ways to reduce px reductions- reduce
profits, reduce costs w/o reducing quality, reducing costs w reducing quality. Bop does not consider e
3rd alt. Biz process redesign will not reduce cost by over 50% w/o reducing quality. A sig
improvements in tech could reduce costs bt this is found only in areas of computers, telecomm,
electronic prdts, which are a small proportion of the poors income. Bop exaggerates px reductions
achieved by inapt comparisions: aravind eye care system with usa. But this exclude the fact tht
aravinds costs shld be converted at ppp not fin exch rate and tht usa healthcare costs high due to
high labour costs, admin costs and malpractice insurance. Shld compare aravind to a hospital in india.
Prices charged in pte hospitals and aravind abt the same. Aravind sub patients due to highly dedicated
staff willing to work long hours for pay same as govt hospitals. Retention is a prob.
Cost-quality trade-offs: contrary to bop prop, oft needed to reduce quality to reduce costs but need
to do oit in a way cost-quality trade-off acceptable to the poor. Good eg: Nirma in india which prod
cheap but low quality detergent tht could even cause blisters. Contrary to bop prop, poor like inexp,
low quality pdts not bcus they do not want good quality but bcus they cant afford same quality pdts
so they have a diff price-quality trade-off frm the rich. Dont need extensive technology. Nirma gd eg
of win-win situation whr coy created a large mkt w sig profits while poor are better off as they get
affordable detergent. Imposing out px-quality trade-off on the poor is disrespectful of their pref.
Quality is a relative concept.
Poor as producers: free mkt advocate EG to alleviate poverty due to trickle down effect but effect is
too slow and little. Need to target prog specifically at poverty reduction.
Microcredit: ideally, microentreprenuers use credit to set up biz, make it thrive and cont to gdp.
Microcredit also have non-econ benefits for clients like self-esteem, social cohesion, empowering
women, smooth consumption over periods of cyclical criss. However, this is not enough. Key issue is
still if microcredit helps eradicate poverty. Additional burden on debt might prove non-beneficial but
overall, still beneficial to a limited extent. Why is microcredit not effective? Not everyone has the
skills needed to be an entrepreneur vision, creativity, persistence. Most clients engage in
subsistence activities w no prospects of competitive adv. Self-employed poor oft have no spec skills &
prac multiple occupation. Biz operate at too small a scale and no paid stuff. Low BTEtoo much
competition. Low productivity leads to lil earnings tht cant lift themselves out of poverty.
Employment: best way to take ppl out of poverty is to create decent employment opportunities.
Indias jobless growth due to emphasis on capital-intensive & skill-intensive dev path. Need to
emphasis on labour-intensive, low skill sector.
Productivity: productivity needs to be increased so tht wages are high enough to allow EEs to rise
above poverty. One obstacle is the inadequate scale econ made worse by microcredit. Banerjee &
Duflo: microentreprenuers do lil to create jobs for others.
Role of govt: govt needs to facil creation & growth of pte enterprises in labour-intensive sectors
through apt policies, infra, institutions. Lack of gd infrastructure results in geog fragmented mkt &
small firms tht are unable to exploit eos. Financing options have to be made avail through an efficient
capital mkt. Dev shuld not be seen only in econ terms but in non-econ terms as well- social, cultural &
political freedom ppl enjoy as they are enablers of indi income growth. Providing public gds help
increase productivity.
Create efficient mkts: poor oft sell pdt to inefficient mkt & dont capture full value of their output
middlemen. E.g Anul,e-Choupal.
Downside of bop prop: de-emphasis on role of state in prov infra & basic svcs and tht self-reg by pte
sector might be solution. To solve prob of poverty, must go beyond incr income. Must improve
capabilities & freedom. Bop prop detracts frm imperative to correct govt failure to fulfill trad &
accepted fxn like public safety, education, public health, infra, all of which incr productivity &
employability of poor and their income and well-being.
Conclusion: Best opportunities exist when firm reduce px sig by innovatively changing px-quality
trade-off in a manner acceptable to poor. Focus on poor as producersmake mkt more efficient such
tht poor capture more value of o/p. Pte firms can invest in upgrading skills & productivity of poor &
create more employmentwin-win.