His new term is expected to last six years this time around, since the Russian constitution was amended to permit a longer presidency.  If he seeks and wins reelection in 2018, Putin could be president until 2024 and effectively rule Russia for over two decades.  He would have served longer than any Russian leader besides Stalin…

Much will be written about the reasons for the comfortable margin by which Putin is likely to win his 3^rd presidential term today, in spite of the ‘Putin-fatigue’ syndrome that has set in among the urban elite.  Articles will mention the craving for an image of a strongman and for stability among many Russians, while others may cry foul about fraud at the polls or related electoral corruption.  Yet this should not obscure three larger issues of significance for Russia and the world, transcending the current electoral event.

  First, Russia governance has been declining for about a decade already, and rather markedly.  This has been discussed in a recent entry and in a conference presentation.  Such decline is seen in figure 1 here.  As we can see, the decline is in virtually every one of the six dimensions of governance (as measured by the Worldwide Governance Indicators, or WGI), notably including a marked decline in Voice & democratic Accountability. 

The current presidential elections, held in a less-than-free environment for the media and for political participation, and where the emergence of viable alternatives to Putin has been stymied, ought to be viewed as a continuation of this trend of declining governance.

  In fact, Russia’s governance standards nowadays rate extremely poorly when compared with the rest of the world, as seen in Figure 2, which averages the six dimensions of governance in the WGI.  Such rough composite of governance indicates that Russia compares poorly with many countries.  Its cohorts in terms of poor governance, like Pakistan, are countries where transition has not been successful.

Second, for quite some time, Russia has already faced the huge challenge of endemic corruption, and if anything such corruption has worsened over the past decade, as also seen in figure 1 above.  There is high corruption in politics, in the executive, in the judiciary, and in the interactions between the private and public sectors.

    As seen in figure 3 here, for every type of bribery, a very high proportion of enterprise managers report that they do bribe often, comparable with countries like Nigeria and Libya, and sharply contrasting the much lower levels of bribery in many other countries. Cronyism plays an important role: those close to Putin in the Kremlin have benefitted handsomely.  And one source of high level bribery is public procurement: the lion share of firms in Russia have to pay bribes to obtain contracts. 

     Furthermore, various forms of bribery have gone up substantially. Figure 4 shows the increasing trend in procurement bribery, leading to the extremely high levels that currently prevail.

Third, the troubling evolution of governance in Russia over the past decade is a wake-up call to the world, which at times has been naïve about Russia’s transition, and about other transitions.  Over two decades ago the Soviet Union collapsed, and a democratic era dawned in Russia and many other formerly Soviet states. Yet since then the progress in democratic governance has been halting in many countries, or, even worse, there have been some reversals over the past decade, such as in Russia. 

These developments carry a warning to the Arab world.  Just because an old autocratic regime is discarded, the emergence of robust democratic institutions is by no means assured.  I have written about this subject in this brief article (here), presented and discussed in various countries, including in the Middle East.

Take the case of Egypt, for instance:  the demise of the Mubarak regime may indeed have been salutary, and can be viewed as a necessary precondition for a democratic transition.  Yet the events being played out also suggest that Mubarak gone, in itself, was insufficient. A broader perspective is useful:  of the scores of initial transitions to democracy over the past fifty years, many have not been fully successful, either having muddled through or even moving backwards, as in the case of Russia.

Democratic transitions are fragile and require constant vigilance, hard work and democratic institution-building for decades after the initial democratic episode.  Short-term setbacks or even marked reversals are not uncommon. The euphoria of the moment when an old autocratic regime is replaced, coupled with the political expediency of the international community, ought not blur the stark assessment of how each transition is actually progressing — or not.

In October 1998, Judge Garzón catapulted to prominence when he broke with traditional international law and tried to extradite the former Chilean ruler Augusto Pinochet from the United Kingdom, where he was receiving medical treatment, to Spain…

At the time Pinochet, like other former autocrats, was fully confident that as a former leader of a sovereign nation he was legally untouchable abroad, regardless of the crimes he had committed while in power. Through that legal challenge Garzón became a de facto architect of the principle of universal jurisdiction.  

Judge Garzón has no small ego.  He has taken activist stances on sensitive issues and sought publicity.  This has not endeared him to Spain’s arch-conservative Supreme Tribunal nor other jurists and politicians in Spain, where he touched powerful vested interests by unearthing high-level political corruption and state-sponsored death squads. Further, professional and political envy at his national and international prominence (he has been dubbed the ‘Superjudge’) cannot be disregarded as a factor in his current predicament.

Garzón may also have made some errors of judgment, such as ordering wiretaps in a political corruption and money laundering case when the law was unclear on the permissibility of such action.  According to Human Rights Watch he was not alone in approving these wiretaps, yet, he was singled out.  Worse, even though he may have made some missteps, being convicted on criminal charges,  and barring him from the legal profession for 11 years (effectively terminating his judiciary carreer) seems to be a wholly disproportionate sanction.

As reported by the New York Times, Reed Brody, counsel for Human Rights Watch, said the “accumulation of the cases against Judge Garzón” suggested “reprisal for his past actions against vested interests.” “Unfortunately,” he added, “it certainly looks like his enemies now got what they wanted.”

A travesty of justice appears to have been committed in Spain, with the fundamental principle of judicial independence becoming compromised. This may seem shocking and unlikely in a country like Spain, where impressive gains in governance and rule of law had been made in the post-Franco era.  In fact, over the past few decades many countries in Latin America have looked up to and learned from Spain’s rule of law and judicial institutions, benefitting from considerable technical collaboration with jurists and legal experts in this area.

                                                                                                               However, the evidence suggests that over the past decade something has changed in Spain’s governance, and not for the better.  Shortly after judge Garzon tried to have Pinochet extradited in 2000 – over a decade after the Chilean dictator left power with immunity – Spain rated higher than Chile on the quality of its rule of law institutions according to the Worldwide Governance Indicators (WGI). By 2010 the countries’ respective positions had reversed, resulting from a decline in the quality of rule of law in Spain and a slight improvement in Chile (Figure 1). 

                     Worse, by 2010 Spain’s performance on rule of law was mediocre by OECD standards. As we can see in Figure 2 Spain (ranked 29th) not only rated well below the Scandinavian countries, which rated among the best in the world, but it also rated below many of its peers, including New Zealand (5th), Canada (9th), Ireland (13th), Hong Kong (20th) and Malta (22nd), among others.  There was nothing inexorable about a deteriorating rule of law — each country featured in Figure 2, with the exception of Spain, exhibited some improvement in their rule of law over the past decade.

Homs had already suffered from recent violence, but had not previously experienced such a horrific assault on civilians. On the same day, the United Nations Security Council (UNSC) failed to adopt a resolution condemning the violence in Syria, even though 13 out of the UNSC’s 15 country members supported the resolution.

Two permanent members of the U.N. Security Council, Russia and China, sided with Syria’s Assad and exercised their veto power. Leaders in the west, as well as the head of the U.N., some Arab States and Syria’s own civilian groups have expressed outrage at the callousness of these vetoes.  Yet such veto should not surprise observers.

The governments of Russia, China and Syria have common interests and protecting the human rights of their own or each other citizens is not high on their agendas. Instead, they share common economic, security and geopolitical interests, including weapons trade. In Spanish there is a rather telling expression: “Dime con quien andas, y te dire quien eres,” whose literary translation is “Tell me with whom you walk and I will tell you who you are,” yet its spirit is best captured by an English idiom, “A man is known by the company he keeps.”

In terms of standards of political governance, with a few differences aside, the three governments make good companions. Their standards of governance are uniformly low and deteriorating. China, Russia and Syria’s common misgovernance is compared to the governance standards of other members of the UNSC below (Figure 1).

Take first Voice & Democratic Accountability (VA), one of the six dimensions we measure in the Worldwide Governance Indicators (WGI). This Voice & Accountability indicator from the WGI captures the extent to which political rights and civil liberties are provided, human rights are protected, and the extent to which there are freedoms of association, expression and press.

     This figure first shows how low, Syria, Russia and China rank globally in Voice & Accountability –towards the bottom of over 200 worldwide. And their governments’ performance on Control of Corruption (another component of the WGI) is similarly subpar.

By sharp contrast, other countries in the U.N. Security Council, which voted in favor of the resolution condemning the violence perpetuated by Syria’s government, perform distinctly better on both Voice & Accountability and Control of Corruption.   Worse – and another reason for why there should be no surprise at the stance taken by Russia and China – the countries’ performance on these important dimensions of governance is not only highly challenged but has deteriorated over the past decade.

At a recent conference on Russia, I presented empirical evidence on the deteriorating governance situation in the country (here). One chart depicted Russia’s trend in several governance dimensions over the past decade such as Voice & Democratic Accountability, Political Stability & No Violence, and Control of Corruption and is summarized in Figure 2 below.   The low and deteriorating level of governance by Russia’s government is not only evident from these indicators, but also from the actions of top political leaders, and in the reaction of its citizens in the form of mass demonstrations against Putin.

  Such sharply contrasting performance on national-level indicators of governance and the disparate priorities across powerful countries provides a sobering perspective on the constraints faced by global governance institutions nowadays, such as the U.N. and G-20.

The power of uncensored data and the voice of domestic and international non-governmental institutions should feature more prominently in an era where some powerful governments are not playing a constructive role in global governance. Nobody knows this better today, and feels the pain of such misgovernance more acutely, than the citizens of Homs.

Yet they have stirred up controversy. As is often the case with provisions that aim at changing the rules of the game, Sections 1502 and 1504 have pitted stakeholders that support their passage and full implementation against the interests of those that wish to water them down or greatly delay their implementation. Last Tuesday, Brookings and Global Witness hosted an event at the National Press Club to examine the debate surrounding these two provisions*…

Representative Jim McDermott kicked off the event by explaining that passing Sections 1502 and 1504 is only half the battle. The eventual effectiveness of these provisions largely depends on how the final rules are written and implemented. If well implemented, they could contribute to increased transparency, empower citizens to capture the gains from natural resource wealth and deny financing to dangerous armed groups in the Democratic Republic of Congo and the surrounding countries…

However, if opponents of these rules succeed in sufficiently watering them down, many of these gains will not be attained. With this in mind, panelists and participants from civil society, the private sector, financial sector and think tanks discussed the benefits, potential costs and implementation challenges of Sections 1502 and 1504.

The first part of the discussion, moderated by Simon Taylor from Global Witness, focused on the costs and benefits of Section 1504, which requires U.S. companies in extractive industries to report project-level payments made to foreign governments. Isabel Munilla from Publish What You Pay (PWYP) emphasized that with detailed information, citizens, civil society organizations and NGOs will be able to monitor corporate and government interactions, hold both groups accountable, and ensure that natural resource wealth contributes positively to local development and livelihoods. Daniel Kaufmann pointed out that data and research from around the world suggests that in the long run, with increased transparency and accountability, citizens could see up to a 300 percent development dividend from improved governance – i.e. their incomes per capita could triple.

Bennett Freeman from Calvert Investments suggested that transparent companies attract more investors because disclosure clarifies investment risks. And Laurel Green from Rio Tinto also supported implementation of these disclosure reforms, pointing out that such transparency can be a competitive advantage since firms can provide host governments with clear evidence of how they contribute to government revenues and communities. Yet not all companies may view such transparency reforms to their advantage. From an economic incentive standpoint, Kaufmann highlighted that, as with practically every rule, Section 1504 also means that there will be winners and losers. Companies that focus on efficiency and innovation stand to benefit, while those that derive gains from rent-seeking, monopolistic behavior or tax avoidance would have an interest in maintaining an opaque status quo.

Some large companies and industry associations that are opposed to the disclosure rule in Section 1504, such as Shell and the American Petroleum Institute, have suggested that project level disclosure will be very costly, position publicly traded firms at a competitive disadvantage, and possibly face in-country discrimination in places with lack of disclosure. There was discussion during the panel suggesting that these claims may be exaggerated.  The reality is that companies already have systems in place to track revenues and payments. In fact, even though Section 1504 is not under implementation yet, some large corporations— like Rio Tinto, Statoil and Newmont Mining, among others— already disclose payments in every country of operation. Further, as reported by some companies that are already disclosing, there does not appear to be compelling evidence that companies will face major penalties by non-transparent governments.

Some companies are also concerned that competitors could use disclosed information to their advantage. First, the information that should be disclosed does not appear to fall under the proprietary trade secrets category. Furthermore, since the rules cover all companies listed on the U.S. stock exchange, major companies like Shell, Exxon and BP are covered, as are some state-owned ones, like Petrobras and Petrochina. Last, and not least, disclosure requirements along the lines of Section 1504 are already being drafted in the European Union, and consideration of similar rules is also taking place in South Korea and Hong Kong, which would widen the network of companies covered and further level the playing field. If anything, firms listed in the U.S. can get a head start on those companies not yet covered by disclosure requirements.

Since it will be virtually impossible to roll back Section 1504 on transparency in natural resources as well as difficult for companies to oppose transparency from a public relations perspective, the strategy by companies opposed to disclosure has been to lobby for watering down the eventual rules issued by the Securities and Exchange Commission and to delay the effective implementation of the rules. The most important component in watering down such provisions would be to make disclosure a requirement merely at the aggregate country-level rather than at the project-level. This loss of this crucial detail would greatly reduce the impact of the measure. All the panelists during this session, including those from the private sector, argued in favor of detailed project-level disclosure.

In the second session, panelists and participants discussed Section 1502, which requires companies that source minerals from Congo-DRC and adjacent countries to disclose whether they use conflict minerals. The rule relies on the adverse reputational impact of such disclosure rather than mandating penalties for actually sourcing minerals from conflict-afflicted regions where militias may be benefitting from this trade. No reputable company wants their product associated with armed conflict, human rights violations, slavery and rape. Yet again there are some companies that support these reforms, while others oppose them.

Corinna Gilfillan from Global Witness, Delly Sesete from CREDDHO in the DRC, and several participants in the audience from the DRC region emphasized that although Section 1502 will not itself end conflict in Congo, it could hold companies accountable for sourcing from mines controlled by militias. The U.N. Group of Experts on Congo has already found that since the signing of the Dodd-Frank bill, there has been a reduction in the portion of mined minerals that is funding the conflict. By denying financing to the armed groups that perpetuate violence in the region, the provision can contribute to increased stability and improved human rights.

As with Section 1504, some companies are claiming that implementation costs associated with conflict minerals in Section 1502 will be very high. There are numerous estimates of these costs, ranging from the SEC’s estimate of $71.2 million to the National Association of Manufacturers’ (NAM) estimate of $9-$16 billion. Recent estimates produced independently by the Claigan Environmental consulting firm and presented by Bruce Calder during this panel suggest that costs to the industry are expected to be less than $815 million.

In fact, some proactive companies (both domestic and foreign) are already showing that tracking supply chains is both practically and financial feasible. Sandy Merber from General Electric and Tim Mohin from AMD discussed how pooling industry resources could help offset individual firm costs. The Electronics Industry Citizenship Coalition and the Global e-Sustainability Initiative have partnered with firms to develop the “Conflict Free Smelters Program“, which allows companies performing due diligence to trace their mineral supply chain down to the smelters who are certified as being either conflict free or not. Efforts are being made to now certify smelters in the DRC region under this program to help preserve access to the international markets for impoverished artisanal miners. Yet the companies that have already taken the lead in tracking the supply chain are a minority, and thus they are bearing a disproportionate share of the cost for so doing. Once the rules are issued and regulations implemented, this cost would be spread among a larger universe of firms.

There are concerns among some in the DRC that Section 1502 will have negative unintended consequences on citizens in the region. They suggest that the disclosure requirements are driving firms out of the DRC, citing falling mineral trade as evidence. Yet Section 1502, which has not yet even been implemented, cannot solely be blamed. Since April 2010, when the DRC-government-imposed six-month minerals embargo ended, trade in minerals has been on the rise. Sesete argued that much of the talk of unintended consequences was akin to fear mongering. He and others have pointed out that the mineral trade in that region is a relatively recent activity and citizens had (and continue to have) other sources to support their livelihoods. Further, he emphasized that the benefits of increased security and reduced violence and instability are too great to dismiss Section 1502 outright.

In the end, as pointed out by Mark Taylor from FAFO, the ability of Sections 1502 and 1504 to achieve their goals depends heavily on effective implementation. The final rules on these two provisions have yet to be released by the SEC. Therefore, the uncertainty surrounding the final rules has contributed to speculations on the cost (both to companies and countries) of implementation. The sooner these regulations come out and the clearer the standards they set are, the greater chance these provisions will have in maximizing the benefits to global transparency, accountability and governance.

As Senator Ben Cardin reminded the audience during his closing presentation, the importance of Sections 1502 and 1504 transcends U.S. companies and Central Africa. Indeed, while the SEC should carefully weigh potential benefits and costs in the implementation of Section 1502 and 1504, the balance should be in favor of transparency.

And the importance of leadership should not be ignored: these specific disclosures in Dodd-Frank will signal that the U.S. is taking the lead globally on these important aspects, potentially nudging other key financial centers to do likewise and thus benefiting governance, security and human rights in many corners of the world.

* On December 13, Brookings and Global Witness hosted The Transparency, Conflict Minerals and Natural Resources: What You Don’t Know About Dodd-Frank, an event examining Sections 1502 and 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The agenda and full transcript can be found here.  This article was co-authored with Veronika Penciakova and originally published in the Brookings website.

Earlier this summer, President Obama welcomed one day apart Gabonese President Ali Bongo and Nigerian President Goodluck Jonathan to the White House.  Both countries share in common significant oil wealth, weak public institutions, and a large proportion of the population living in poverty.

Nigeria is ahead of the laggard Gabon in terms of developing democratic institutions, and has made inroads compared with its misgoverned authoritarian regims in past decades, even though it still faces considerable governance challenges, such as corruption (including in some provinces) and violence…

Then, shortly after President Obama welcomed these two African leaders to to the White House, First Lady Michelle Obama embarked on her second official solo trip, this time to South Africa.

While oil geopolitics played a role in the U.S. president’s agenda, the heightened emphasis on sub-Saharan Africa, and especially on its economic progress, is in stark contrast to how the region was cast in the past. For decades Sub-Saharan Africa (SSA) was inappropriately cast by many in the West as a wholesale “basket case”; an abjectly poor, economically stagnant region.

We rejected such an “afro-pessimist” view in the past.  Yet over the past year or so the pendulum may have swung to the other extreme. The region’s overall performance in recent years – featuring economic growth and reductions in poverty and child mortality rates, among other achievements – had many heralding Africa’s “new dawn”. 

And now, in light of the ongoing famine in Somalia, a failed state, the conflict in Sudan and Chad, and the brazen act of terror that just took place against the UN headquarters in Abuja, the Nigerian capital, the holdover afro-pessimists may attempt a resurgence of their view of doom for the continent.

Now we take exception to both extremes.  Our analysis* suggests that progress in a number of African countries has been laudable, yet one should be wary of premature exuberance and shy away of overly rosy assessments and  declarations that some official aid organizations tend to disseminate nowadays, abstaining from touching on critical pending challenges in governance and corruption.

The high variance in governance and development performance across the SSA warrants focusing on country specifics, moving past regional averages and mere comparisons with a troubled  past.  Indeed, contrasting the performance of African countries with that of other emerging economies provides added insight into the challenges facing the continent.

Africa is a Diverse Continent

Too often sub-Saharan Africa has been viewed as a singular unit rather than a conglomeration of 48 individual countries. While income per capita in the region grew at an average rate of 2.1 percent annually over the last decade, per capita growth rates ranged from -6.0 percent in Zimbabwe and -4.1 percent in Eritrea to 15.3 percent in oil-rich Equatorial Guinea, 7.7 percent in oil-rich Angola and 6.2 percent in Sierra Leone. A high variation across countries in Africa is also evident on a variety of other economic and governance indicators.

Radelet (2010) explores cross-country differences by distinguishing between groups of countries based on economic performance, classifying SSA into four groups – emerging (17 countries, such as Ghana and Ethiopia), threshold (six countries, such as Liberia and Benin), oil exporting (nine countries, such as Angola and Congo) and other, which we re-label as fragile (16 countries, such as Somalia and Zimbabwe) [1].

According to Radelet, countries in the emerging category have experienced economic growth and poverty reduction since the mid-1990s, while threshold countries have seen similar, though less dramatic, economic changes. Oil exporters have experienced uneven and volatile progress, and fragile countries have seen few economic improvements.

On average, incomes per capita among Radelet’s group of 17 emerging SSA economies grew at 3.2 percent annually over the last decade. Growth in emerging economies outpaced threshold (1.7 percent growth) and fragile (-0.5 percent growth) countries, though not oil producing ones (4.5 percent). However, it is important to note that even among this elite group of emerging countries there is a high variance in both economic and governance performance [2].

Since research has shown that the quality of governance impacts long-term growth and development, it is particularly important to emphasize governance alongside short-term economic performance. We have reviewed the performance of SSA countries on a broad range of governance indicators, including voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption from the Worldwide Governance Indicators, and political rights, civil liberties and press freedom from Freedom House.

We find that the 17 emerging economies category can be split into at least two groups – those that we label as performing emergers, which have had adequate growth rates and relatively satisfactory levels of governance, and the quasi-performing emergers (Ethiopia, Rwanda, Uganda and Zambia), which have exhibited adequate per capita income growth in recent years but where governance performance remains subpar.

The quality of governance across countries in the region differs considerably, and even among the “emerging” group of countries in SSA we observe substantial variation in voice and democratic accountability (Figure 1 below). On average the group we label performing emergers rates in the top half of all developing countries; by contrast, the group of quasi-performing emergers rates in the bottom half of all developing countries on this important governance dimension.

To illustrate, among the 17 emerging SSA economies some stellar countries like Mauritius and South Africa (performing emergers) exhibit voice and democratic accountability on par with Slovakia and Brazil, while countries like Rwanda and Ethiopia (quasi-performing emergers) are on par with Afghanistan and Azerbaijan. Further, according to Freedom House, while the 13 performing countries among the emergers have either a free (39 percent) or at least a partly free press (61 percent), with the exception of Uganda (partly free), the press in “quasi-performing” countries is rated as un-free.

While it may be tempting to generalize and hail sub-Saharan Africa’s “new dawn” (or as “old doom revisited” by some naysayers), it may be more accurate to hail it as:  a dawn of a select few performing emergers with strong growth and good governance. This group represents only a quarter of the region’s countries and a fifth of its population.

Cross-Regional Benchmarking Provides Insights

We have noted that several SSA countries have seen improvements in social and economic indicators over the past decade. But benchmarking against other developing countries and regions provides additional perspective.

Some sub-Saharan African countries exhibit strong economic performance relative to countries in other regions, though several do not. Over the last five years, average per capita incomes in SSA grew slower than in any other developing region (2.3 percent growth).

On the one hand, the growth performance of SSA’s performing emergers (3 percent growth) was on par with the regional average for all countries in Latin America (2.9 percent growth) and with the new European Union countries (3.2 percent growth). On the other hand, countries in SSA’s “threshold” (2.2 percent growth) and “fragile” (0.2 percent growth) groups performed well below these groups and on par with countries that were either generally misgoverned or harder hit by the recent global financial crisis.

A similar pattern emerges when comparing governance across world regions. As Figure 2 suggests, the extent of control of corruption among performing SSA economies is similar to that of countries in Latin America and the Caribbean (LAC), but below the levels of East Asian newly industrialized countries and newly acceded EU countries. Quasi-performing emerging economies of SSA display governance levels similar to those of developing East Asian countries, and threshold and fragile countries have governance levels on par with South Asia and Former Soviet Union economies. Notably, SSA oil producers have the weakest control of corruption among any of these groups (Figure 2).

Our assessment of economic and governance progress in SSA countries points to both encouraging and sobering news. About a quarter of the region’s economies are performing well relative to their neighbors as well as their competitors worldwide in areas such as growth and governance. Yet the majority of sub-Saharan African countries are still lagging behind, in growth, voice and democratic accountability, control of corruption and other important dimensions of governance (including political stability, rule of law and government effectiveness).

A key question is how to foster continued progress in performing countries and promote growth-and development-enhancing change in non-performing ones. Rather than providing a long list of recommendations—which would be futile given diversity of the countries— we put forth some principles to spur a discussion on priorities for reform.

Focus on Targeted Proposals

The challenges facing many African countries are complex, ranging from low productivity to high unemployment and from an underdeveloped middle class to poor health outcomes. It is often tempting to draw up a long list of reforms trying to tackle each one. But, not every sectoral constraint is best addressed through an isolated intervention, and resources, political capital, and institutional capacity are limited. Each country also has its own first-order priorities. Therefore, a country should focus on key reforms that are mostly likely to have the largest impact at every stage. While recognizing the importance of other areas, we focus on governance, which affects all economic sectors and is central to achieving sustainable development.

Fundamental and proximate causes of underdevelopment differ. The numerous causes of underdevelopment in SSA can be divided into two categories: proximate and fundamental. For instance, many countries in the region lack a strong middleclass, which may hinder domestic savings and investment. While it is impossible to “inject” a middle class into Africa, it is possible to foster its development by tackling the underlying constraints that hinder its growth.

A fundamental cause of underdevelopment is poor governance. Research shows that good governance fosters sustained growth in the longer term through domestic and foreign investment, private sector development, improved public sector management and sectoral development. Additionally, voice and accountability, political stability, corruption control and rule of law are crucial for equitable growth and middle class development. The latter are often identified as key constraints to progress in sub-Saharan Africa.  But in fact they represent proximate causes.

Governance has a large development dividend. Through various channels improvements in governance may spur progress in areas that are currently hindering development in sub-Saharan Africa and other regions.

•  Improved governance facilitates incomes growth.  Previous research suggests that there is a large development dividend to improved governance. In the long run, on average incomes could rise three-fold if the very weak control of corruption in Zimbabwe was improved to those of Senegal, or then from those of Senegal to the middling levels of countries like Botswana.

In this Motion Chart (Figure 3, linked here, and play button will activate motion over time) the positive relationship between control of corruption and income per capita over time can be seen. Improvements in other aspects of governance, including political stability and rule of law have similar effects on incomes, and causality has been found to run from improved governance to higher incomes (rather than the other way around).

• Voice and democratic accountability promote equitable and sustained growth. Recent events in and around the region have highlighted the importance of voice and accountability. Countries in North Africa that experienced high growth in recent years, such as Tunisia and Egypt, have recently experienced social unrest and undergone regime change.

Instability in the Arab region has stemmed from popular dissatisfaction with the governance deficit, highly inequitable growth, unproductive or non-existent job prospects and corrupt institutions. While the realities and challenges of SSA differ some from those of the Arab world (and North Africa), many countries in SSA still face a large democratic governance deficit and corrupt institutions, even within the emerging group (Figure 1 above). The risk of unrest is real in a number of SSA countries.

Such social unrest and prolonged civil wars also undermine economic and social development. Research has shown that conflicts reduce growth rates, even during post-war recovery, and have a severe negative impact on human health. In fact, nearly half of Radelet’s fragile economies can be considered conflict or post-conflict countries.

•  Good governance promotes competitiveness and investments. Numerous studies have found a positive relationship between private investment and high regulatory quality and control of corruption. Weak regulations and high corruption create uncertainties in the economy and may discourage investment and result in ineffective allocation of resources and a diversion of funds. Other components of good governance are also strongly connected to private sector growth. As Figure 4 indicates, countries with stronger rule of law are more competitive.

And it raised questions about building safety in this geographical area, which is not known to be earthquake prone.  Thus it has not been subject to the more stringent building codes that apply in places like California, not to speak about the large stock of very old structures which exists in the East Coast… 

In looking for an upside to the earthquake, other than the relief in realizing that there were no major injuries or damage, some may quip that the earthquake can be salutary, since Washington was in dire need of being shaken and rattled.  The problem with this argument is that the timing was off, since politicians are in recess and mostly far away, so they would have hardly noticed.  In fact, newswires, Facebook and Twitter were abuzz reporting just after the earthquake struck that the Capitol building had been evacuated.  But that should not have been difficult, at least in terms of evacuating the VIPs, since they were not around.

It is no secret that nowadays it is politicians who in the eyes of both voters and entrepreneurs are being regarded in particularly poor light.  Recently I wrote about this here, so will not repeat it, except for providing a summary graph showing how the US Congress is viewed by firm managers nowadays, compared with yesteryear, and also compared with other countries.  The picture is dire regarding the view on the U.S. Congress today, and starkly contrasts the view by firms of their Parliaments in other countries (seen in this chart, picked up by the Economist). 

But let us face it:  today’s earthquake is unlikely to make any difference to this view on a dysfunctional US Congress; the required shake-up is obviously much more fundamental, and political rather than geological in nature. 

Yet could it be that the earthquake may have had an effect, either way, on the stock market?   A brief look at what transpired at the New York Stock Exchange may, or may not, suffice.  At 1.48pm earlier today, August 23rd, a couple of minutes before the earthquake struck,  the level of the Dow Industrials Average (DJIA) stood at 11,063.  Right after the earthquake hit, the Dow dips slightly, but to quickly recover and then climb substantially, to end at 11,177 by closing time at 4 o’clock. 

Consequently, the Dow closed over 100 points (a full percentage point) above the pre-earthquake level merely a couple of hours earlier.  In short, the stock market rose quickly in the aftermath of the earthquake. 

Concluding from such simple empirical observation that earthquakes can help the stock market obviously belongs to the ’ridiculous statement’ list, or the ridiculist.

But nowadays I do not stand out pointing to this causal link, however ludicrous.  Add this assertion to the mix of statements about the economy that we have heard in recent weeks from politicians, merely stating that ’earthquake helped the stock market’ (based on the above evidence), while it may make it to the ridiculous list, it would not rate near the top in the ‘Politician Statements on the Economy Ridiculist’.

The competition for the top slot in the Economic Ridiculist has been fierce among politicians lately. Take for instance the claim that Bernanke’s monetary policies at the Fed are ‘treasonous’, reflecting not just disrespect for Shakespeare but an utter misunderstanding of economics, finance, and the Fed’s performance (which has been good).  Or the myriad of statements about the failure of the expenditure stimulis implemented by the US Treasury (they actually worked, more is needed).

Or the statements about the salutary effects of not raising the debt ceiling, reflecting ignorance about the distinction between stocks and flows, and between past IOUs and future expenditures.  Or the irresponsible call for major budgetary expenditure cuts as soon as possible, thereby increasing the likelihood of a recession.  Or the notion that egregious tax loopholes for oil companies need to be protected, and justifying it with the misleading claim that they can make a difference in increasing aggregate demand at the macro-economic level.

One can go on and on regarding basic economic and financial fallacies that prevail nowadays.  I merely wanted to illustrate the anti-intellectual and anti-knowledge environment that seems to have taken hold of the political discourse in Washington, adversely affecting policy-making and market sentiment.  This matters enormously, since it is already having dire consequences for the US economy and potentially for the world at large.

Paradoxically, in today’s globalized world, in contrast with the US (and with some countries in Europe), many emerging regions exhibit much improved macro-economic management than in the past, reflecting learning from experience, improved know-how and global dissemination of such know-how, graduate education in top schools abroad and at home, and, importantly (outside of the US), increased deference to technocrats on difficult economic and financial matters.

Take for instance Latin America, and countries like Chile, Uruguay, Brazil, Colombia, Costa Rica, among others.  Politicians increasingly understand the importance of relying on evidence, some modicum of science and expertise, and thus on technocrats, even if some macro-economic issues are obviously still subject to political and technical debates.  These countries also pay close attention to the financial markets, which do provide an important signal when deviation from common economic sense takes place among politicians and policy-makers.

Irrespective of ideological affiliation, nowadays in many Latin American countries politicians do understand that there is no room for ’voodoo’, or ‘supply side’ or any other extreme ’fundamentalist’ construct for economic policy.  In many of these countries any remaining divide regarding macro-economic policy does not follow an ideological divide, but is strictly generational instead.

Misunderstanding on the basics of economic policy was part of a certain political class two generations older than the current policy-makers in power.  The younger generation not only understands well the analytical and practical aspects of macro-economic policy-making, but the approaches taken are common to both (left- and right-of center) sides of the ideological spectrum.  And it is rare (though it can still happen) that politicians irresponsibly try to undermine a serious head of a Central Bank or a Minister of Finance who is technocratically carrying out her or his job steering the economy. 

It may be revealing for some members of the US Congress to undertake a study tour to some countries in Latin America.

And the forum’s co-chair, Brazilian Minister of Foreign Affairs Antonio Patriota, also stressed that through such multilateral cooperation the OGP could play a role in stimulating innovation, improving the quality of public services and contributing to national efforts in governmental transparency.  Throughout the forum, governmental and non-governmental representatives from around the world emphasized the important role that civil society organizations can play in encouraging openness, empowering citizens and promoting change through their own transparency initiatives.

The OGP Forum was an auspicious start to an ambitious project. However, achieving global transparency remains long and challenging, and only over time will the concrete contribution of this initiative be seen.   Yet, this inaugural forum showcased exciting initiatives and raised important questions, such as how to effectively build networks of governments, foster cooperation with civil society organizations, identify targeted reforms and use technology to foster a transparent environment.

Many governments have already made great strides in promoting transparency: For example, Brazil is now disseminating information on government spending and fund transfers data through their Transparency Portal;  the U.S. has embarked on efforts to publicly account for Recovery Act spending; and Kenya has published its national census, government expenditure and parliamentary proceedings data through its new Open Data Portal.

Civil society actors around the world are working to further the transparency agenda in diverse ways.  India’s NGO MKSS combats graft stemming from the implementation of the National Rural Employment Guarantee Act by painting employment and building material costs on walls outside of construction projects in rural areas.  Ushaidi Kenya maps citizen reports of acts of violence, while Chile’s innovative Ciudadano Inteligente promotes transparency and active citizen participation through new web technologies.

The OGP offers an opportunity for governments from around the world to share best practices in transparency reforms and the inclusion of both governmental and non-governmental participants facilitates collaboration between key stakeholders. Civil society organizations could continue to nudge governments toward increased transparency, as well as complement and reinforce ongoing reforms by disseminating information to the public and monitoring implementation. For instance, in Slovakia, the Fair-Play Alliance’s Z Nasich Dani (From Our Taxes) new online tool, which discloses the names the individuals behind companies who do business with the government, is complementary to the Slovak government’s online publication of public service contracts by allowing citizens to dig deeper into the relationship between companies and the state.

The OGP is also working to identify the transparency reforms to promote. The OGP used four criteria (fiscal transparency, access to information, senior official disclosure and citizen engagement) to identify around 80 eligible countries, but it is no secret that each country finds itself at a different level of openness.  Although it is noteworthy that the criteria extended beyond the existence of e-government to encompass deeper forms of transparency, the OGP will still need to strike a balance between emphasizing country-led solutions while encouraging deeper reforms and discouraging “open government” rhetorical window-dressing.

It is reasonable to expect very different paths; some countries may initially focus reforms in “high-risk” sectors, such as in the extractive sector in resource-rich countries, while others may focus first on engaging the citizenry in the policymaking process.  Either way, it is important to attain broad consensus regarding what constitutes concrete progress, versus mere pronouncements or decrees on paper only.

The important role of transparency reforms in combating corruption was the subject of a specialized panel at the OGP forum. For transparency to have more substantial impact on anti-corruption and development, deeper reforms may be needed. For instance, publishing official statistics and general budget data online can be a first step, but one ought not declare “premature victory” after tackling such generic “low hanging fruits.”

Indeed, well implemented freedom of information laws or well disseminated budgetary and procurement details at the project and municipal level can be expected to have larger effects.  Furthermore, there can be large payoffs to tackling the more politically difficult reforms, such as transparency in the drafting of laws and in policymaking, campaign finance, lobbying, the disclosure of officials’ assets, and fully disclosing which powerful private sector and media executives the leaders of government meet regularly with.

New technologies are only part of the answer. Twenty-first century technology has simplified and accelerated information dissemination and has lead to a new set of cost-effective and interactive tools that make it easier for the public to engage with the data. Many existing open data platforms can easily be adapted to visualize different datasets at a relatively low cost. For instance, the United States and Kenya now use the same platform to publish their government data. However, as the open government agenda evolves, there is the risk of becoming hypnotized by technological wizardry at the expense of the availability, timeliness and accuracy of the most relevant types of information.

In this context, civil society groups, think tanks and researchers may play a role in reviewing the quality of information and data being disclosed (or withheld), in monitoring and analyzing information citizens deem the most relevant, and in constructing and disseminating user-friendly worldwide transparency and governance databases.   Yet we also need to be mindful that country context matters. Online tools may be helpful in many situations, but in others putting information on a wall or disseminating it through community radio or a mobile text message may be a more effective in reaching people.

   Research and experience suggest that there are links between transparency, combating corruption and more robust democratic institutions. The OGP represents an opportunity to further the openness agenda by bringing governmental and non-governmental partners together to share experiences that could inform and complement the implementation of transparency reforms at home.  Last week’s OGP kick-off forum was a positive step toward global transparency.

But it was a first step.  Significant work lies ahead in the months to come.  The first order of business is to get the OGP formally and concretely off the ground.  Led by their founding country members (Brazil, Indonesia, Mexico, Norway, Philippines, South Africa, the United Kingdom and the United States – and hopefully India decides to rejoin), the OGP is expected to be formally launched by country leaders during the upcoming United Nations meetings in late September in New York.  In parallel, the critical role of civil society needs to be concretely detailed, and governments from eligible countries have to formally join the OGP and be prepared to make transparency reform commitments that can be mutually reinforced and monitored.

[This post was jointly authored with Veronika Penciakova and originally published as a Brookings Commentary]

We thus ask what types of regulatory failure may have contributed to Japan’s nuclear crisis and assess whether the U.S. Nuclear Regulatory Commission (NRC) is at risk of committing similar errors*…

Regulatory failure occurs when the regulatory system is deeply flawed – such as when it over- or under-regulates or when the regulatory design is based on “old science”. Regulatory failure also happens when agencies inadequately fulfill their oversight, supervisory and enforcement functions. Failures by regulatory agencies can go undetected for some time until they are exposed by a crisis, such as the BP oil spill in 2010 and the financial crisis that originated in Wall Street in 2008.

When assessing regulatory failure, it is important to distinguish between at least three different types of failure: lack of resources, mismanagement and poor technical expertise, and capture of the regulator by the regulated.  Episodes of regulatory failure result from different combinations of subpar performance in some or all of these components.

Which dimensions were associated with the failures at Japan’s regulatory agency?  Does the U.S. nuclear energy regulator face similar challenges? Let us review each of the three types of failures in the context of Japan’s NISA and the U.S.’s NRC.

Lack of Resources: When regulators lack the resources to hire staff, provide adequate training and expend the money necessary to monitor industries, regulatory concerns may go undetected and failure may result. The evidence does not suggest that Japan’s NISA or the U.S.’s NRC lacked sufficient resources to effectively implement regulations.

Mismanagement and “Old Science”: The regulatory system may sometimes over-regulate (business start-ups) or under-regulate (in finance, oil and nuclear power) due to ideological reasons or inadequate use of the latest knowledge and techniques. Even when regulators have a sufficient mandate to regulate and are provided adequate resources, they may still be ineffective at implementing and enforcing regulations and overseeing the operations and preparedness of the plants. The lax application of regulations and resistance to adoption of the latest scientific know-how and technical expertise regarding risk assessments can cause regulatory failure.  Also, regulation and knowledge mismanagement can distort the incentives for industries to meet safety standards.

Japan: The Fukushima nuclear crisis has exposed NISA’s failure to respond to the evolving scientific data and technology and to enforce regulations stringently. Since the 1980s, NISA has failed to act on warnings it received regarding the resilience of reactor containment structures to core meltdowns and the ability of plants to withstand earthquakes and tsunamis. This is particularly worrying since Japan has historically been prone to both earthquakes and tsunamis. For instance, in 2007 a 6.8-magnitude earthquake resulted in 1,200 liters of radioactive water leaking into the Japan Sea. The plant operator, TEPCO acknowledged that the reactors had not been designed to withstand an earthquake of that size.

Japan’s nuclear power safety regulations appear to be based on assessments of maximum earthquake and tsunami events derived from the modern historical record. However, these methods do not take into consideration uncertainties that account for a non-zero likelihood of a more devastating future earthquake and tsunami, even though risk assessment models that do so currently exist. Moreover, NISA has largely left the task of risk assessments and emergency response planning to plant operators and has merely published voluntary guidelines on advances in regulations rather than issuing concrete binding regulations. NISA is only now starting to order nuclear power plants in Japan to inspect devices and equipment and formulate emergency plans.

NISA has been lax in ensuring the adherence to safety regulations of Japan’s nuclear power plants. In 1999, 20 tons of radioactive water leaked into the Tsuruga plant from a cracked pipe. Even though a similar pipe had sprung a leak in 1996, these pipes were not inspected in subsequent years. In 2004, five workers were killed when super-heated steam burst from a pipe at a reactor run by Kansai Electric. It was later discovered that the pipe had not been inspected in five years.

NISA has also remained passive in addressing the nuclear industry’s long history of deception and cover-ups by different private operators, including but not limited to TEPCO. In 2002, five top executives from TEPCO resigned over a string of safety record cover-ups, including the falsification of containment vessel tests and shroud safety records. In fact, in 2002 four major nuclear companies admitted to concealing evidence of cracked containment structures from NISA. In 2007, seven of the 12 public utilities admitted to having falsified past safety records.   And at a basic level, it is now emerging that TEPCO’s disaster response plans that had been drawn in case of an accident at the Fukushima plant were totally inadequate:  they merely called for one stretcher, a satellite phone, and 50 protective suits.  Again, this raises serious questions not only about TEPCO, but about NISA’s oversight.

United States: While a degree of regulatory laxity plagues the NRC, it results more from lax enforcement of regulations than from failure to heed warnings or private sector deception. The NRC’s Office of the Inspector General uncovered 24 instances in which nuclear plants failed to report defects in equipment that could pose safety risks. In the last eight years, the regulator has not imposed any penalties on plant operators for such infractions.

For 15 years, the NRC allowed a water containment system to leak in New York despite the problem being documented. In South Carolina, a plant operator had to shut down reactors twice in six months. One of the shutdowns was caused by a power shortage in an electrical cable that had been installed in 1986 and was not up to standard. In New Jersey, a nuclear plant was relicensed in 2009 even though it lacked a reactor containment shell that could withstand a jet crash. Within seven days of its relicensing, an ongoing leak of radioactive tritium-polluted water was uncovered. These regulatory oversights in the U.S. likely contributed to several accidents, but none are as severe as those in Japan.

The US regulatory system faces a particular challenge regarding the handling of the vast amounts of spent fuel. At the beginning of 2010, nearly 65,000 metric tons of spent fuel was being stored at U.S. nuclear power plants. The NRC does not have limits on the amount of time fuel can remain in spent fuel pools and has not mandated, for instance, the transfer of spent fuel to dry casks, which are located away from reactors. Currently, nearly 10 times as much fuel is located in spent fuel pools than in the reactors. This is worrying as the pools are not protected by containment shells as the reactor cores are.

However, whereas Japan has tended to use outdated risk-assessment methodologies, the NRC has been more proactive in utilizing the latest technology to address potential safety risks. Although in the U.S., the types of risks nuclear plants face are different (such as lower risks of tsunamis afflicting power plants), risk assessments carried out in the U.S. do consider each plant’s geographical location and all plants have to take into account the risk of potential terrorist attacks. In recent years, the regulator has adopted some new risk assessment techniques in their plant-by-plant reviews. Some of the modeling techniques used in the U.S. also takes into account the risks of potentially devastating future natural disasters.

In Japan, mismanagement results from the regulator’s failure to adopt the latest technology and to punish private sector deception. In the U.S., the problem seems to center around general weaknesses in regulatory oversight and lack of a spent fuel strategy. While the U.S. NRC’s mismanagement and challenges in technical expertise appear to be less severe than those of Japan’s NISA, improved regulatory enforcement by the U.S. NRC may still be warranted.

Capture: The incentives for regulators to effectively implement regulations can also become distorted when industry actors exert undue influence over the regulatory process.

Japan: The influence of the nuclear industry over NISA occurs through various channels. NISA is not an independent regulator and is therefore even more susceptible to outside influence. NISA is housed under the Japan’s Ministry of Economy, Trade and Industry (METI), which promotes the nuclear sector domestically and abroad. METI has very close connections to the nuclear industry and has been charged with distorting information presented to public officials on nuclear energy and orchestrating the defeat of alternative energy development legislation.

The METI has made it clear that expanding Japan’s nuclear power industry is of central importance to the government’s growth strategy. As such, it has been instrumental in the launching of the International Nuclear Energy Development of Japan Co. (JINED), a public-private partnership headed by TEPCO to sell nuclear reactor contracts to developing countries. In the fallout from disaster, it seems the government has recognized the danger of this conflict of interest and there are now reports that the Japanese government is considering splitting NISA from METI.

Japanese officials also have an incentive to be deferential to private sector counterparts since retiring public officials often obtain prominent private sector jobs in a practice called amakudari, or “descent from heaven” (a practice in the U.S. known as the “revolving door”). It is not uncommon for individuals involved in the nuclear sector to act at different times in the licensing, rulemaking and inspections process.

For instance, a director general of the Ministry of Economy, Trade and Industry (METI) obtained a job with TEPCO after leaving his regulatory post. Private nuclear power industry companies may also have a direct role in shaping regulations. When the government convened a panel to revise nuclear regulatory standards in 2005, 11 of the 19 members on the panel were from the nuclear industry.

United States: The NRC faces similar types of regulatory capture challenges, but the agency is an independent regulatory agency and therefore not involved in the promotion of the nuclear industry. Yet it receives 90 percent of its funding from industry fees, which potentially compromises its independence.

One report suggests that the NRC has acted in some cases more to safeguard the interest of the nuclear power industry than the public. Nearly half of NRC employees surveyed by the agency in 2002 said they feared raising safety concerns might undermine their career. Also, as is common in other regulatory agencies in the United States, NRC employees often pass through the revolving door. There have been some isolated cases when regulators have accepted gifts from and made decisions in favor of future employees prior to leaving the NRC. In one recent case, a commissioner voted on a matter that benefitted three nuclear companies, two of which he was negotiating an employment contract with at the time.

In the United States, the NRC is connected to the nuclear sector through industry efforts to influence the legislative process. Last year, the U.S. nuclear industry spent nearly $54 million to lobby Congress and employed 12 former members of Congress as lobbyists. Some of the top supporters of the nuclear power sector have also been some of the largest recipients of campaign contributions from this sector. There are many examples of this type of lobbying. For example, Exelon, one of the U.S.’s largest nuclear operators, contributed to the campaigns of the House minority whip and the Energy and Commerce Committee chairman and contributed to 14 of the 19 members in the House of Representatives from states where Exelon owns reactors.

Conclusion

The manifestations and extent of regulatory capture in Japan and the U.S. differ, with the problem seemingly more acute in Japan. However in both countries, regulators have had their incentive to regulate effectively distorted by the influence of the nuclear industry. In the fallout from the Fukushima crisis, the role of numerous actors will be scrutinized, including TEPCO and the Japanese government. But, the role of Japan’s nuclear regulator should not be underestimated.

By failing to sanction plant operators for safety infringements and to heed safety warnings, NISA allowed the private sector to continually skirt regulations. NISA may not have been properly empowered to mandate changes in the private sector. In addition, whatever de jure mandates they may have had, they did not forcefully implement in practice. To a significant extent, it appears that regulatory capture of NISA by Japan’s nuclear industry turned the regulator into a caretaker of industry rather than one for public safety.

The U.S.’s nuclear and regulatory situation differs from Japan’s. The evidence suggests that the NRC is not effectively enforcing regulations. The NRC’s regulatory struggles do not stem from private sector deception, but from a degree of regulatory capture (there are some instances of undue influence) and particularly from the weak enforcement of existing rules.

In the United States, the NRC will imminently be undertaking a 90-day review of the country’s 104 reactors.  But in addition an in-depth review should also be conducted by a fully independent commission (akin to the Kemeny Commission established in the aftermath of the Three-Mile nuclear power accident).  An independent commission could review how the NRC could more effectively implement existing regulations and conduct plant-specific “stress tests” of seismic risks with the purpose of revoking licenses in cases where standards do not conform to the risks exposed by the latest technology. The independent study should also look into an industry-wide strategic approach to safely managing the storage of spent nuclear fuel, which poses a particular risk in the United States.

*  This is a Commentary article at Brookings, co-authored with Veronka Penciakova

Thus, throughout his visit, Obama may confront issues far removed from Latin America.  Fittingly, or ironically, Latin America has not been a priority for U.S. foreign policy in recent years. From a national security standpoint, there are a few exceptions, such as two important countries Obama will not visit, namely Colombia and Mexico, where narco-violence has attracted U.S. focus.  Yet, that almost sums up the extent of U.S. foreign policy priorities vis-à-vis the continent so far…

But, this presidential visit ought not go to waste. President Obama chose Chile, not the Brazil powerhouse, or Argentina (a G-20 member that Obama will not visit), to publicly address the Latin America region.  On the world stage, Chile, which is not in the G-20, is considered a modest country.  In this regard, one can draw similarities to Obama choosing Ghana over Kenya or Nigeria for his address to Sub-Saharan Africa when he visited that region.

Obama will undoubtedly go through the motions and raise issues that the US and Chile have been working on for some time, including training, intellectual property rights, narcotics control, innovation, visa waivers, and the Trans-Pacific Partnership (TPP) trade negotiations with Asian partners.  Obama would be well-advised not to insist on signing a specific nuclear power agreement with Chile in this most-sensitive of times, considering the current events in Japan.  More generally, in light of the current reality in Chile, and the major crises unfolding around the world, Obama may want to deviate some from his official script.

For starters, departing from practices by some in the past, Obama should treat Latin Americans in general, and the Chilean leadership and people as equals,   After all, in spite of the superpower gap, Chile and the U.S. exhibit some striking similarities in their achievements and challenges.  For example, Chile is no longer a developing country, but rather a successful emerging economy and a full-fledged member of the OECD.  While Chile’s accession to the club of industrialized nations is recent, this commonality brings into stark relief another similarity between both countries:  both the U.S. and Chile share a similar quality of governance in most dimensions, as we see in Figure 1.

For instance, among over 210 economies around the world, on Government Effectiveness, Chile ranks 31^st and the U.S. 24^th; on Regulatory Quality, Chile rates 14^th and the U.S. 23^rd; and on Control of Corruption, Chile rates 23^rd in the world and the U.S. 32^nd.  On Voice and Democratic Accountability, the United States rates somewhat above Chile, while the converse is true for Political Stability/Absence of Major Violence/Terror.   Both countries have serious challenges regarding security and safety.  In Chile, this is due to high levels of common crime stemming partly from inequality. In the United States, the high homicide rate is partly due to ubiquitous availability and use of guns, which puts at risk high level politicians.

The fact that the United States’ quality of governance is not superior to that of Chile ought to be seen as evidence of Chile’s progress over the past couple of decades, and as a sobering reminder to the U.S. that it is not a model country on governance.  Model countries, such as Scandinavian economies and New Zealand, should serve as symbols for Chile and the U.S. of what is attainable.

Besides governance, Chile and the United States have commonalities and differences. Both countries have relatively deficient educational systems in dire need of bold reform (though even more so in Chile). Over the past decade, Chile has done much better than the U.S. in macro-economic management, sustaining fiscal stability and maintaining the integrity of its financial sector.  Conversely, Chile has much to learn from the U.S. regarding technological innovation.

Another common trait is self confidence.  Polls suggest that citizens in Chile, Israel and the U.S. tend to have very high self-esteem, while people in Japan, South Korea and Switzerland tend to be very humble.  Not surprisingly, the current heads of state of Chile and the U.S. also exhibit very high levels of self-confidence. On the one hand, such high self-esteem can create a blind spot to personal and countrywide challenges and shortcomings—both leaders have had low poll ratings recently.  On the other hand, such self-confidence, if coupled with boldness and risk-taking, can be a positive force for reform, as witnessed with Obama’s push for health care and financial reform last year and Piñera’s handling of the miners’ rescue.

Undoubtedly, in President Obama’s major public address to Latin America that will take place in Santiago, he will praise Chile’s performance. He would be wise to steer clear of condescending comments on the country and region, and instead focus on the shared achievements and challenges facing the U.S. and Chile.  To avoid meddling in internal politics, Obama should not apportion credit for Chile’s achievements to either the current (right-of-center) or past (left-of-center) governments. All Chileans, and every (post-Pinochet) leader, deserves credit for the country’s institutional and growth performance.

The fact is, in contrast to the destructive squabbling between Democrats and Republicans that dominate Washington politics, Chilean politicians, from all parties, even if they disagree on emphasis and details, have shared for years a common agenda on maintaining sound financial and macro-economic policies, sustaining robust growth and poverty alleviation and expanding social safety nets, open markets and good governance.

In his message to the region, Obama should focus on the region’s major constraint to future progress and social peace: glaring inequality.  He should not waste this opportunity by speaking lengthily on the obvious (to Latin Americans) virtues of democracy and protection of human rights.  With the exception of Cuba, and notwithstanding the challenges in a few countries like Venezuela and Nicaragua, these are not contentious issues for most every citizen or leader in the region.

The traditional political approach to inequality focuses on inequality of income, access to productive jobs and educational opportunities. It would behoove Obama to suggest that an underlying determinant of economic inequality is political inequality.  In Latin America, there is an enormous divide between the powerful elites and the rest of the citizenry.  The former wield disproportionate political influence in shaping the laws, regulations and policies—what we have dubbed as “state capture,”—and such excessive presence of “elites and business in government” has been a driver of economic inequality.

It would be a bold step for Obama to take a fresh approach to inequality and frankly talk about political inequality, vested interests and undue influence of corporate elites. These are particularly sensitive issues not only in Latin America (even in Chile, the otherwise “stellar performer”), but also in the U.S. Not only has economic inequality grown recently in the U.S., but the challenges of undue political influence and money-in-politics have become increasingly damaging, as Obama well knows. By taking this opportunity and talking frankly about economic and political inequality, Obama could move away from what otherwise may be just another public address, into a transformative message on shared achievements and shortcomings and the need for serious political reforms in Latin America and the U.S.

When U.S. presidents travel to countries in an emerging region, with their vast entourage of officials and executives, it is typical to see a focus on partnership agreements (and on vague grandiose pronouncements).  Obama’s trip to Latin America may be no exception, as illustrated by so many writings on specific ‘transactional’ agreements that may be signed on the visit.

But it is important to keep in mind that such bilateral transactional approach should not come at the expense of a commitment to to a few economic and policy fundamentals in the US:  establishing truly open markets (to goods, services, ideas and people) into the U.S., prudent fiscal policies to attain macro-economic stability, and making the financial sector more resilient, so to strive towards sustained growth in the U.S.  A pledge by Obama on these fronts, which would entail tackling domestic undue influence by protectionist, as well as Wall Street, vested interests, is likely to have more of a concrete impact on Latin America than signature of any bilateral transaction or particular partnership with a country in the region.

Unfortunately, bureaucratic or administrative corruption is far from being the most damaging type of corruption for a country, or internationally.  High level political corruption, and within it, the particular form we have called ‘State Capture’, can be far more damaging where it is prevalent.  We have been emphasizing the problem of state capture (the undue influence of the corporate elite in shaping the rules of the game) for well over a dozen years, including in countries like Russia and Ukraine (here), and also in the financial sector of the US (here), leading up to the recent Wall Street-induced global financial crisis…

But the challenge of state capture is tougher to quantify (though feasible).  More importantly, similar powerful vested interests that are at play in capturing the institutions (regulations, policies, laws) of the state also tend to discourage an open and frank debate on it.  This is particularly the case in official circles, among domestic and international elites.   In light of the Wall Street debacle, and the detailed insider accounts of what transpired before, during and after the crisis, it has been more difficult to mask the challenge of regulatory and state capture.

There is still a particular dimension of state capture which still goes relatively unrecognized as such, however.  This is the capture of one state’s foreign policies vis-a-vis autocratic countries through the undue influence by multinationals and lobbyists doing the bidding to favor a lenient treatment of the autocratic regimes.  In short, state capture in the international arena, or international state capture.

The current Libya crisis is exposing this type of capture.  It is becoming increasingly evident that for many years a number of US-based powerful multinational oil companies have been very pro-active in trying to influence US foreign policy towards Qaddafi.  Highly paid US consultants and lobbyists, including academics and former ambassadors have been recruited to burnish the image of Qaddafi in US official circles, to lobby favoring pro-Libya policies, to emphasize the commercial interests in that country, and to laud the ‘stability’ of Libya.

Obviously, concern for the totalitarian nature of the regime and the human rights abuses did not feature prominently in their work (to put it mildly).  Further, the now well known ‘revolving door’ in the US between the lobbying firms, the regulators, and the regulated within an industry seems to have also been extended to the US-Libya case.  For instance, according to a media report, the founding chairman of the lobbying group called US-Libya Business Association (USLBA) went on to a position of influence (regarding energy issues) in the US State Department.

All this, and much more, including the role of other lobbying and consultant firms, and the list of oil companies behind this effort, is described in detail in a recent report in The Huffington Post (here), and another one in Mother Jones (here). The first article also contains the now off site web-based brochure by the USLBA lobbyists, as well as excerpts from a diplomatic cable from the US embassy officials in Tripoli, released by WikiLeaks.  And the second article focuses on another lobbying association, called USA*Engage, with members such as Halliburton and oil giants, and their article suggests that they have currently been lobbying currently against the US imposing sanctions on Libya.

The Qaddafi debacle is still being painfully played out, and this evolving process is likely to expose further information and dire lessons.  And the details given by the reporting in the Huffington Post and in Mother Jones warrant outside scrutiny, given the sensitive nature of the allegations on the role of multinationals, lobbyists, and officials.  Nonetheless, at a broader level, it may not be premature to suggest that Qaddafi’s Libya may become a case study in international state capture, where effective lobbying and commercial interests (alongside the fight against terror) unduly influenced US foreign policy in a direction that paid little attention to the nefarious aspects of an autocratic leader who engaged in gross human rights violations and denied socio-economic development of its people.

It is particularly important to expose and openly debate these issues at this juncture, not only given Qaddafi’s debacle, but also in the context of the increasingly permissive ‘money-in-politics’ corporate environment in the U.S. in the aftermath of the troubling recent landmark Supreme Court decision on Citizen United vs. the Federal Electoral Commission which is likely to enable large corporations to become even more influential in policy.

Qaddafi’s Libya may also become a case study of the fallacy that Diplomacy and Development go hand in hand.  In reality, often they have opposed each other, with Diplomacy’ winning the upper hand.  Of course the challenge of international state capture is not unique to the United States.  For instance, as hinted in my previous post on the case of Qaddafi’s Libya, the case of the UK is rather similar.

Touching on the ‘Faustian Bargain’ where global commercial oil interests tend to dwarf human rights and development concerns, in this video interview I discussed briefly these issues a few days ago, here.