The declaration includes a generic list of a plethora of financial sector  ‘principles’ and many areas of work.  But at least it is comprehensive in scope, touching on most of the right ‘buttons’.  It provides space to work concretely on real issues.

Arguably the most important achievement is that this G-20 summit did take place in the first place.  By doing so it promises to set in motion a process towards more inclusive voice for a number of important emerging country governments beyond the G-8.  The commitment to collaborate by this diverse set of governments is noteworthy, as is their shared belief that market principles, open trade, and effective financial regulation are essential for growth, employment and poverty reduction.  Yes, the devil will be in the implementation details, but it is a good start.

Of course, I would argue that better representation from the emerging world would have helped further.  The inclusion of a few smaller yet successful emerging economies, such as Botswana and Chile, can bring in good experience and example (even to some in the G-8…) on governance and policy-making standards.  [Incidentally, both countries would have enlarged the representation from Africa and South America].  Still, the G-20 is an improvement over the outmoded G-8…            

On the downside, it is disappointing to see an absence of a more concerted effort to coordinated expansionary fiscal policy (while maintaining a sound monetary stance). 

And in terms of diagnosing the actual causes leading to this financial crisis, what this Summit delivered was generic, glib, and politically correct.  This is understandable, given the (current) governmental constitution of the Group.  But getting a deeper diagnosis on the table is needed, in order to figure out what the actual priorities for action should be in the coming year. 

Otherwise we face the ‘Christmas tree’ risk, i.e. preparing catch-all laundry lists with hundreds of disparate new measures in scores of different reform dimensions, without prioritizing (and sequencing) properly.  Strategic priorities, with an implementable action plan that focuses on attaining concrete results over the next 12 months, requires a diagnosis that can come up with the most important set of actions, setting them apart from third-order issues or decorative ‘bells and whistles’.   These may be politically expedient but are costly diversion from the more painful but priority actions.

In particular, the challenge of governance, integrity and corruption remains under-emphasized in the incipient diagnosis provided by the G-20 summit just concluded.  This downplaying is then mirrored in the action program.  Integrity, transparency and insider trading get some lip service.  But there is no explicit treatment of some of the capture, undue influence, corruption and misgovernance abuses that did play an important role in the crisis.

Further, there is no clear distinction between two very different types of regulation: those aimed at transparency and disclosure, which are ‘win-win’,  vs. regulations to control and restrain, which have tradeoffs.  The latter require cost-benefit analysis and an assessment of what is the optimal regulatory approach (so that there is no regulatory over-shooting).

It is not just that we need to understand the causes of the crisis, or only embark on regulatory reform carefully unbundling very different types of ‘regulation’.  Because there is also a larger new governance challenge afoot, which is actually due to one of the fast approaching consequences of the financial crisis.  A seismic shift is resulting in an unprecedented rapid increase in the role and scope of government in ‘market economies’ during peace time.

This new overarching role of government is occurring at three levels.  First, in shaping (and soon, in overseeing and enforcing) regulation; second, in becoming an owner of industries (such as finance, insurance, cars? — even if ‘temporary’), and, third, in doling out at lightning speed hundreds of billions of dollars directly to private institutions.  These present a whole new set of governance and integrity challenges.  Lobbyists and vested interests are already knocking at the door, as in the cases of potential bailout recipients, and of carmakers in the US and Europe.  Further, a number of international financial institutions and donor agencies are rushing to push money out of the door, fast, to selected governments. 

This new reality, with its governance implications, was ignored by the first G-20 summit that just ended.  But the G-20 and multigovernmental institutions are not alone in being silent.  This new world order, with implications for various forms of misgovernance, capture and corruption, has so far been largely ignored everywhere–even by the international anticorruption movement!

But it is not too late.  Another G-20 summit will take place this coming April, with the new Obama administration fully involved.  A process to do serious work towards such summit has also been committed to, even if these tougher governance challenges are yet to be explicit. 

Let us strive towards ensuring that these serious issues are not conveniently ignored, but instead concretely tackled.  In the weeks and months ahead, many may want to contribute to the debate with specific and concrete recommendations, so to help address these risks of corruption, capture and misgovernance that are brought about by this new ‘governmental’ world reality.

There is too much at stake to stay mum or politically correct.

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Upside benefit, with no downside risk to the exec

 Let us fast forward first, so to concretely illustrate.  We are told now by the Wall Street Journal and CBS that in recent years, Freddie Mac and Fannie Mae spent millions of dollars lobbying some influential members of congress, in exchange for, among others, lax capital reserve requirements for these mortgage dinosaurs.  More generally, thanks to their lobbying prowess, over the years these obsolete institutions had become virtually untouchable behemoths.  In some past administrations, a few high level Treasury officials had grasped how dangerous these anachronistic institutions were, but could do nothing about it.  A classic case of capture.

Consider next the ‘small’ derivatives unit of AIG, headed by Joe Cassano, conveniently located in London so to ensure particularly lax oversight over the dubious accounting and disclosure practices evidently abetted by its chief (and even possibly by AIG’s own CEO).  Away from oversight, and loath to disclose their actual financial situation, this unit of less than 400 staff spearheaded hyper-risky financial derivatives which practically brought down the AIG’s empire of over 100,000 employees in 130 countries, and possibly with it, the world’s financial system as we used to know it. 

The confident arrogance of these AIG principals (who were taking immense systemic and social risks while maximizing their own benefits at little private risk to themselves), was the result of a de facto regulatory capture by the all-mighty firm.  They could engage in virtually any financial ‘engineering’ they wished, including insuring exotic and junk CDOs, without oversight, and with total disregard for basic standards of accurate financial disclosure to analysts, shareholders and prospective investors.  And the short term profit and bonuses for the principals were stratospheric.  As stratopheric is now the cost to the public, gone global. 

Seeing red: downside risk was passed on to the public

Slight rewind to April 2004 for one more telling instance of capture.  A riveting account of what happened in basement meeting in Wall Street only appeared last month in the New York Times.  That meeting took place four years earlier at the Securities and Exchange Commission (SEC), when the five largest investment banks had put their collective weight to persuade the SEC to allow them to relax regulatory restrictions they (and other such financial institutions) faced in taking on much larger amounts of debt.  The meeting before the five SEC commissioners (one of whom asked skeptical questions but was rebuffed) was sparsely attended, and went unreported in the media.  It lasted 55 minutes. 

The SEC decision was to relax such debt constraints on this group of large investment banks, but to subject them to a modicum of oversight.  Yet subsequently, and up to the current crisis, there was no real oversight either.  The SEC did not even staff such oversight unit properly, and up to recent months the SEC leadership was on the record suggesting that the banks were adequately capitalized, and that they could essentially oversee themselves.

Enter now the problematic field of study of corruption, which has many challenges nowadays.  One of them is having underplayed for too long the study of misgovernance in the financial sector.  But briefly about the basics first: the way corruption is traditionally defined in this area of research is flawed, and its approach to measurement also requires further scrutiny.  The interpretation of the traditional definition of  “abuse of public office for private gain” is often ‘legally’ biased towards unearthing evidence that an egregious illegal act has been committed, and, further, it is biased towards pointing a finger at a public official as the main culprit.

I thought this definition was inadequate years ago, when we were quietly writing about it (e.g. research papers such as ‘Legal Corruption’).  The incipient evidence from the current mammoth financial provides more dramatic evidence than any paper anybody may have written.

Many among the poor lost out, worldwide

As we wrote some time ago, the focus on corruption needs to move away from exclusive focus on the ‘abuse of public office’ and squarely acknowledge that corruption often involves collusion between the public and private (and at times outright capture by the private potentates).  Further, corruption ought to also encompass some acts that may be legal in a strict narrow sense, but where the rules of the game and the state laws, policies, regulations and institutions may have been shaped in part by undue influence of certain vested interests for their own private benefit (and not for the benefit of the public at large).  It may not be strictly illegal, but unethical and extra-legal.  This undue influence by private vested interests on the state sector may, or may not, involve the exchange of a bribe or, depending on the country’s laws, another illegal act.

Therefore, it makes sense to have a neutral and broader definition of corruption, akin to: “the privatization of public policy”.  In addition of being a legally neutral definition, it moves beyond coarse manifestations of bureaucratic bribery, and it would encompass undue influence or capture of regulations and policies by narrow interests.

Would this view of corruption change the measurement of how countries rate on corruption?:  

Absolutely.  

Let us take the case of the United States.  Over the past few years, traditional measures of corruption, such as Transparency International CPI, have placed the US at about the 10th percentile, currently in fact ranking as the 18th among the 180 rated countries.  By stark contrast, when we calculated an index that only focused on ‘legally corrupt’ manifestations (undue influence through political finance, powerful firms influencing politicians and policy-making), the US rated in the bottom half among over 100 countries where businesses were surveyed!

In our estimates, countries like the Netherlands, Norway, Denmark and Finland scored highly on the extent of corporate legal corruption and undue influence (1st to 4th, respectively, among the 104 countries rated).  By contrast, the US rated in 53rd place, Russia was 74th, and Italy 47th.  Chile was rated 18th, well above the US on this particular legal corruption dimension, and so were countries like Botswana, Colombia and South Africa, which also rated well above the US.  Conversely, Argentina and Venezuela rated much worse than the US.  This data is from four years ago (the same variables are not available more recently), but typically such ratings do not improve dramatically unless there is a major political change and decisive reforms. The data is here (go to 2nd tab ordering by Corporate Legal corruption).

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Almost twenty years later, as we approach the end of the first decade of the new millennium, we are in the midst of a US-led major crisis of the Western financial system. Very different quarters are gloating now, blaming it on the failure of capitalism, and suggesting that a return to a system with socialist overtones is not only preferable, but unavoidable.  Many point out that even the essence of the bailout plan, put together by a free market administration in the US, already points in that direction…!

Crisis tends to provide fodder for extreme ideological positions and hasty policy-making.  On the ideological front, last century’s most tragic example was Hitler’s rise to power in the aftermath of the great recession.  History shows that the cycle of crisis and resulting revamp of political and economic models, associated with extreme ideological swings of the pendulum, do end in either extremely controlled or extremely uncontrolled systems.  On each extreme of such pendulum, crucial checks and balances are lacking, whether it is the lack of political and market competition in an authoritarian socialism, or the lack of government oversight and regulation of finance in an unfettered market democracy.

The absence of checks and balances are associated with large scale abuses, paving the way for yet another crisis.  The new crisis results in another over-reaction cycle, with checks and balances likely to remain wanting this time on the other extreme of the pendulum.

From such perspective, it may be useful to provide some perspective on the ideological and policy reactions to the current financial crisis.  For the sake of debate, let me make the following claims here:

1. The demise of the Soviet Union exposed fundamental flaws in planned systems as a substitute to monetized and market-based capitalist systems.  Yet this historical development did not provide evidence that the optimal form of capitalism was of the unfettered free market variety.  In fact, drawing from the lessons of decades of development experience, the 1991 World Development Report, entitled ’The Challenge of Development’ (full disclosure:  I was one of the co-authors), did not advocate an unbridled free market with minimalist government.  Instead, it put forth the notion that a ’market-friendly’ approach to the role of the state was needed, one where the government had to effectively fulfill basic core functions to support, safeguard and complement the market.  Some of the public goods that an effective government had to provide included primary education and basic health, social safety nets, defense, the proper regulatory role in financial markets, anti-monopoly policies levelling the playing field for private sector development and enabling entrepreneurship, and growth.
2. The financial sector has traditionally been viewed as a unique sector, given its role in oiling the whole economy and recognizing the broad systemic implications of any failure in a major financial sector entity.  This has traditionally justified the call for much broader oversight and regulation in this sector than in other sectors of the economy.  But over-reacting to a financial sector crisis and supporting restrictive regulations of the economy’s real sector, including trade, food and labor markets, would not be justified.
3. Further, as a political knee-jerk reaction to the crisis, there is even the danger of over-regulating the financial system itself, to such an extent that credit and entrepreneurial activity (which unavoidably involves risk taking) are choked for a much longer time.  There is no question that government oversight and regulations of financial activity need to be strengthened as compared to the regulatory laxity that has pervaded over the past decade or so.  But the devil will be on the details of ‘how’ and ‘what’ to regulate.  Sarbanes-Oxley (SoX) may have been full of good intentions, but in the aftermath of Enron et al, the excessive regulatory zeal of SoX overshot its target.  As I blogged before, such over-reaction often takes place due to the political and legislative imperative to ‘act resolutely’ through blunt legal and regulatory fiat in the heat of a crisis.
4. In figuring out the ‘how and what devil-in-the-details’ of the next stage of financial sector regulations it will be important to distinguish between very different types of regulations:  those that enhance transparency and information flows; those that force people benefiting from the risks to face also the downside costs (and not only benefit from the upside — in other words, an ‘aligning of incentives’, heretofore absent); those that provide for improved oversight and supervision of the whole system (with emphasis on systemic risks), and those that put retraints on financial institutions.  Enhancing transparency, which should be at the core of the reforms, would be a win-win without imposing a social cost.  To the contrary, it addresses asymmetric information in this context (a silent issue has been the failure of governance, vested interests, and corruption, which warrants a separate blog entry). 
   It would also be a win-win to adopt policies that align (downside and upside risk) incentives for those mortgage lenders and derivative brokers that take risks.  Yet other regulations by fiat have costs (restricting entrepreneurship and growth) as well as benefits (lowering risk).  Thus they need to be weighed carefully to prevent any over-reaction on regulatory fiat.  Some regulations, such as some of the conservative prudential regulations may make eminent sense, while others  may not, such as draconian capital controls on cross-border financial flows, for instance.  And forcing banks to increase capital when risks increase may cause credit to fall, precisely when the opposite is needed.

A financial crisis can have vasts costs and consequences around the globe, particularly in the short-to-medium term.  But such consequences, and the political rethoric around it, ought not cloud the need to engage in a reasonabale debate about appropriate ideological, systemic and policy responses, which will have wide ranging ramifications for the longer term. Moving from an unfettered free market ideological stance to a pragmatic and middle-of-the-road market-friendly role for the government may be warranted: one that balances the need for continuing private entrepreneurship and market-led innovation with the checks and balances of government oversight and pro-transparency regulations.

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Civil Society and Transparency 

Let us not exult.  The last minute changes are far from path-breaking.  But they are encouraging because they ‘officially’ recognize the role of independent Civil Society Organizations (CSOs) as third party monitors and as active participants in the policy dialogue; they support local (not donor) ownership of development programs, and they commit to transparency in aid and to a few timelines for progress on selected areas (such as on reducing aid fragmentation and duplication). 

Bringing concrete transparency to all multilateral and bilateral donor agencies and to the projects and programs donors fund (including those of the World Bank), as well as instilling more transparency within institutions and programs of recipient countries, would of course constitute major progress – even if long overdue.

Likewise if a leap forward were to take place in empowering CSOs to be concretely involved as actual partners.  On this, it is worth looking into the new initiative launched in the eve of the Forum, when a group of CSOs – including ONE (formerly DATA), Tiri, Access Info, Action Aid and UK Aid Network– launched the Publish What You Fund Initiative.  It lays out principles for greater transparency in the delivery and funding of aid.  Also check out aidinfo.org.  And let’s keep a close eye on how DfID’s International Aid Transparency Initiative, just launched, will actually track how aid is spent.   

From Communiqué to Delivery 

These are welcomed promises of sunshine. And many officials seemed enthusiastic about the agreements in the AAA communiqué.  Time to uncork champagne and celebrate?:  Not so fast, I am afraid.  

Let’s remember that these are communiqués, declarations.  They need to be put into concrete practice, with monitorable time-bound benchmarks on those things that really matter.  Accra was not the first meeting of its kind. The track record so far is mixed.  Three years ago the major donors got together at Gleneagles and pledged major increases in development aid, with focus on Africa.  The actual amounts of aid delivered so far fall short.  As it is customary, Jeff Sachs reminds us that some of the most powerful donors in particular are lagging behind.

Cleverly, one of the Accra sessions did emphasize the importance of improved “predictability” of aid resources — for the case of health, in fact.  Important, no doubt.  But why not focus first on whether overall amounts of promised aid resources by each agency and country have been delivered or not (and hopefully untied…) – whether “predictably” or “unpredictably”…?

Critique by Civil Society

Civil society appears divided in their assessment of what was accomplished in Accra.  Some, like The Reality of Aid, are pleased that they manage at the last minute to get some CSO issues into the AAA declaration.  Others, like CIDSE and Caritas point to unaddressed issues in the final resolution, such as the food crisis, and regret that few time-bound commitments were agreed to.  Better Aid characterizes the AAA as “marginal progress”, stating that it fails to make aid work better for the poor due “backroom deals and obstructions within the negotiations.” (since they happen in the ‘backroom’, and I was so far away, I have no idea which obscure ‘deals’ they are referring to).

Missing in Action

Beyond these loud celebrations and critiques, there is also a “silent elephant” that was being kept under wraps: how best to concretely support better governance and corruption control?  Obviously more focus on transparency, which did feature at the Forum, helps.  And talking transparency (and a bit of ‘accountability’ for good measure) instead of governance and corruption is a politically palatable way to get some unreformed official signatories on board.  It causes allergy to some to have to deal explicitly with commitments on media freedoms, on controlling state capture and high level corruption, on integrity safeguards in official statistics, or on an independent and clean judiciary.  

As a result, minimal mention (and merely exhortative) of governance and corruption challenges is made, while concrete time-bound commitments and targets on key dimensions of governance and anticorruption have gone missing. By contrast, the focus is on the technocratic problem of ‘capacity’, and how donors will help solve it. The question of political will to improve governance is conveniently ignored.  It is easier to talk about strengthening institutional capacity… Considerable ‘accommodation’ takes place.

1990

The problem is that we are no longer in 1990, but on the verge of 2010.  Obscuring the reality of the impact that governance and corruption exert on aid effectiveness is no longer possible.  This reality is crucial not merely for safeguarding the integrity of particular donor projects, since the notion of ‘ring-fencing’ is absurd anyway.  More fundamentally, good governance and anticorruption matters for ensuring that overall aid supports domestically-led governance reforms and has a country-wide development and poverty alleviation impact.

Further, consider a setting with initial weak institutions, but where there are political will and governance reforms. In such setting, if explicitly tackling head on the challenge of governance and anticorruption, the divisive debate about using or not using “country systems”’ would morph into constructive work by donors supporting country-led governance reforms and working with the institutions of the country—within and outside the executive.

Contrasting 1990, when is was taboo, in a 2010 world it would be a step backwards to move away from explicitly and concretely addressing governance and corruption in Aid Effectiveness.  And it would send a message that we have not yet learnt the lessons from Zimbabwe, Kenya, Burma (Myanmar), Sudan (Darfur), Chad, among others.  It does not surprise that Transparency International deplores the absence of concreteness on fighting corruption during the Accra Forum. 

The paucity of actions on governance and corruption are not the only indicator that some of the ‘Aid Effectiveness’ industry is still in 1990 rather than in 2010.  Glaringly absent from the Forum were the path-breaking IT innovations taking place nowadays, in spite of the fact that they offer such great promise to improve governance (including for a freer media) and aid effectiveness.  Similarly, the traditional Aid industry may not yet be grasping the seismic shift taking place due to FDI (for some time already) as well as private donor aid and sovereign funds (more recently). Similarly absent are the innovative market- and private-driven solutions to development challenges.

2010

Honoring funding pledges, and better governance of aid delivery, including untying aid and selecting types of funding and programs that maximize development effectiveness, are some of the pending challenges for the donor community.  And the resolve by reformist leaders and civil society in recipient countries to implement governance improvements is paramount for development impact. 

Top-Down:  Witness the reforms that the leader of Liberia, Ellen Johnson Sirleaf has been spearheading, and her contribution during the Accra Forum, where she called on donors to honor their funding pledges and go about it more efficiently, while at the same time addressing the challenge of corruption faced by recipient countries. 

And Bottom-Up listening to stakeholders: when we ask thousands of citizens in developing countries for what they consider the priority for aid effectiveness, they mention support for improved governance and anti-corruption ahead of other options, including whether to provide funding to their central governments.

In a blink, the 2010 world will be with us.  One where governance, integrity, IT and free media, privates and market-based solutions do matter.

 Worldwide Governance Indicators
 

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I have been blogging about many of these before, but a blog entry is one selective take on a particular issue, whether news that day or not.  So I thought that it is worth also giving some broader snapshot of the governance news of the day.

But what does this have to do with ‘Delicious Governance’?   Well, it is simply a play with words, because some governance news may be delicious, but unfortunately many are not, so the answer lies elsewhere: building on the social bookmarking trend, I am piloting a “Governance News” blog section through a space on Delicious –a social bookmarking service to manage and share web pages–, where I will show a selection of governance content from the news, blogs and other sources around the web.  It is not going to be an exhaustive compilation of governance news and happenings, and it will not necessarily reflect my own opinions or points of view. 

Instead, I am sharing topical and timely information on governance worldwide, these days for instance centered around  developments in Russia-Georgia, Pakistan and Zimbabwe, as well as others less mentioned in China, Mauritania or Mexico.  Even though most of the content will be in English, will add a few bookmarks with content in Spanish, French and Arab.

How does Delicious Governance work?  Whether you have a Delicious account or not, you can go to the “Governance News” section to see my bookmarks (bottom of the right column), and click on “governancenews.”  If you do have a Delicious account, add me to your network, and feel free to send me more governance related content that you like (just add the tag for:governancenews, and I’ll receive your bookmark).

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And in spite of such obsession, nobody seems to get the medal ranking race straight.  Who really won?  Hard to tell, for unsuspecting reasons.  Lets see.

For starters, the media in the US shows us tables ranking countries according to the total medal count.  That puts the US at the top, having accumulated 110 gold, silver and bronze medals, against 100 medals for China.

Officially, the IOC tries not to officially rank countries, but their tables list countries ranked by their number of gold medals (see Sydney and Athens’ results).  Following this criterion, as it is common in much of the rest of the world, China comes out clearly on top, with a total of 51 gold medals, against only 36 for the US.

So far so good, and not much new.  Enter my economist bias… 

First instinctive reaction is to reject either criteria, asking why do we have to choose between two absurd extremes in terms of implicit medal weights?: one extreme giving as much weight to a bronze medal as to a gold one, while the other extreme simply saying that only gold glitters and thus silver and bronze are worthless – zero weight.

As economists, we would argue that silver should have some weight, but less than gold, and so should bronze, but less than silver.  A simple scheme would value a gold medal as the equivalent of 3 bronze medals, and silver as the equivalent of 2 bronze medals, arriving at the 3, 2, 1 weights respectively for gold, silver and bronze.  Who would win the Olympic medal race under such weighted scheme? 

China and the US virtually tie for first place, with China officially accumulating 223 ‘bronze equivalent’ medals, and the US taking 220 medal equivalents.  So China would stay slightly atop if no gymnast gold medalist is officially declared to be underage and disqualified, in which case such slight advantage would evaporate.

So who actually won the medal count race, China or the US?  Neither, perhaps… 

Enter my economist bias again, where I would question the excessive obsession with mere cumulative totals, disregarding huge differences in country size.  This matters, since population size provides the potential pool of gifted athletes.  Remember that as economists we are enthralled with ‘per capita’ measures.  And in fact population size is one of the best explanators of total medal haul, even if many other factors matter as well (including being the host country, governance, etc.).

So, who won most medals per million inhabitants?.  You guessed it: Jamaica did, and Australia gets a very special mention indeed. 

If we only look at how many gold medals per capita the country athletes got, Jamaica would have been the runaway winner by ‘Bolt light years’, with well over 2 gold medals per million people, compared with only about 0.04 gold medals per million people for China, and 0.12 per million for the US.

But as an economist one pretends to be consistent, so let us look instead at the cumulative weighted medals (bronze equivalent) per capita.  The table on the left (double click on it) shows the results for the ‘top 30’ countries according to this medal per capita criterion.  Again, Jamaica atop: it got about 10 (bronze) medal equivalents per million people.

And among notable others in this per capita medal ranking, witness Norway (4.5 medals equivalent per million), closely followed Australia, Slovenia, Mongolia, New Zealand, Cuba (3.5), Georgia (2.7) and Latvia, all among the top ranked 15 countries.  And the UK (1.6 medal equivalent per million) makes it to a respectable 22nd place.  This bodes well for their 2012 London Olympics, because there is always an additional host country boost on medal haul.  You cannot find the US in this table, because it would rank only 44th out of the 197 country participants.  China would be 66th. 

Foul!, some will cry, no doubt.  I may soon hear that all what counts is absolute total power; who cares about per capita anything…or softer power, for that matter.  Those more subtle may remind me that even if the size of country delegations vary a lot, the number of athletes per sport is capped at the Olympics, and, further, for most team sports only one team per country can compete. 

But the point is that even if the number of Olympic participants per country is not proportional to its population, larger countries not only have larger Olympic contingents, but can rely at home on a much larger qualifying pool of athletes, vetting the very top talent required to go on to the Olympics to win a medal.  Further, studies suggest that there is also a ‘large market superstar’ effect: the super talented reaping a huge payoff in very large markets, providing an additional advantage to very large countries.

Still, let me be considerate to larger countries, and analyze the rankings only among those with over 20 million people, shown on the right.  39 out of 52 such large countries obtained medals, and a number of those large countries performed well even on a per capita basis. Australia is the runaway standout, with 4.4 bronze medal equivalents per million inhabitants, followed by the solid performances of the UK (1.6) and South Korea (1.4), then by France, Canada, Germany, Ukraine and Russia (1.0-1.2), then by Italy, Spain, Kenya and Romania (0.8-0.9). 

Still, some will continue to cry foul.  Even economists will criticize me; some may say that instead of the per capita measure I should be calculating medal ranks relative to the country’s GDP, so to try and get an ‘efficiency’ ranking of sorts.  But this critique does not make sense, because of governance: it would be easy for Zimbabwe and North Korea to be ranked at the top of the medal totem pole (per unit of GDP), simply by misgoverning the country to such an extent that they run it to the ground.  Then the denominator (GDP) in the calculation virtually disappears, propelling them to the top of such ill-advised relative medal count ranking…

So we could stick with Jamaica atop, with Australia getting an honorable mention, in the per capita rankings.  And in giving top honors to Jamaica, we are erring on the safe side: if we would have allowed flexible weights given to gold, silver and bronze according to the actual difference in performance between the first, second and third best athletes, then Jamaica would win by a landslide — thanks to the stunning gap between Bolt (and some of his Jamaican teammates) and all others!

Ok, in ending, some will say: who cares about counting medals! 

Indeed, this here is an exercise in minor relativism, first, in order to move away from the medal rank obsession among huge powers.  And second, to insinuate that actually it may be futile to try and have a foolproof method of figuring out which country wins the medal count, even if we thought it was important to do so.  While the original context was not exactly the same, it is relevant to revisit the (Nobel Prize-winning) Arrow’s ‘Impossibility Theorem’ of well over 50 years ago, proving that there is no one superior way of rank ordering.  Arrow won then, Bolt won now.  The rest is relative.

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The complex internet censorship by the authorities in China, dubbed by many as the “Great Firewall”, seems to be more aptly be characterized as “Net Nanny”, according to blogging and cites by  Rebecca MacKinnon, a founder of Global Voices and expert on  internet and blogging censorship issues (also here).

The ‘Great Firewall’ refers to authorities censoring online content (especially blogs), either through sophisticated technology, or by “unofficial” directives to internet providers, or through control of media content “orientation” by posting pro-government news, comments or blog entries.  ‘Net Nanny’ goes beyond this and also relies on Chinese “netizens” (a frequent user or citizen of the internet) who may be like-minded and believes that internet content should be controlled, and that the authorities (being informed on such inappropriate content) should censor it.  For a set of survey results on the views of Chinese internet users on this, see this World Bank blog entry here.

So the Net Nanny is at work when a Chinese blogger is censored by the authorities after a fellow  netizen denounces her/him, but also indirectly when bloggers exercise self-censorship:  such bloggers often know how to get around the ‘Great Firewall’, yet desist from doing so, fearing consequences such as jail time.  This piece in the UK’s Guardian addresses this issue, and also mentions that 70 journalists and 50 “cyber-dissidents” were imprisoned according to Reporters Sans Frontières.

But perhaps things may improve (and we need to also keep in mind that other countries do have their own challenges in “managing media content”, including among the G-8).  There may be growing awareness among some of the powerful within China that to solidify itself as a world power and to secure longer term internal stability, robust and shared growth in the coming decade will be paramount.  Increased openness and empowerment of citizens everywhere in terms of freedom of ideas and expression (and also in order to have redress where there is local mismanagement and corruption), as well as and increased political contestability, may be an important complement to the already attained freedom in trade of goods.  Some are already speculating (see article in the Guardian) about possible reforms in China after the Games. 

And the starting point for reforms regarding the web also offers a possible window, because even though there is censorship, it is far from absolute, and ongoing IT advances may help.  Chinese and foreign netizens in fact already do get around the Great Firewall, either through technological means, or by hosting their blogs in server outside China, or as an example by simply talking about “push-ups” when they really meant to talk about the riots in the Weng’an region after a girl died without knowing is she was raped or committed suicide (see here).

Moreover, intelligent blogging by Chinese experts themselves presenting careful and constructive critiques and reform options may now be having a hearing, paving one way towards more openness in the next phase.  Perhaps China’s President Hu Jintao may be hinting about an increasing authorizing environment when he recently stated: “We pay great attention to suggestions and advice from our netizens.  We stress the idea of ‘putting people first’ and ‘governing for the people’….With this in mind, we need to listen to people’s voices extensively and pool the people’s wisdom when we take actions and make decisions. The web is an important channel for us to understand the concerns of the public and assemble the wisdom of the public.”   

It is crucial to identify who is arguing internally for change, because China will continue to change and grow thanks to the Chinese people, and not because somebody from the outside says something…  And there is sensitivity to outside criticism, yet acknowledgement that there may be difference of views.  In response to criticism on human rights, President Hu also said: “It is only inevitable that people from different countries may not see eye to eye… we should enter into consultations on an equal footing to narrow our differences and expand our common ground on the basis of mutual respect.” 

Of course, a ‘domestic’ extension of this ‘cross-national’ argument would be to explicitly say that different people within the same country may not always see eye to eye either, and that openness and respect for such diversity of opinions within a nation makes it stronger.

President Hu in fact has also stated: “While constantly deepening economic reform and achieving sound and fast economic and social development, we will continue to pursue comprehensive reforms, including reforms of the political system.”    Will the Olympics be regarded as a turning point?

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And I was not even trying to be exhaustive, so I did not mention other troubled spots right now, such as the hundreds killed in the ongoing and growing Pakistan-Taliban conflict in the Afghan border. Given how dire these current conflicts are, I was making a case for keeping our eyes wide open around the world, rejecting the notion that good governance can take a holiday at the time of the Olympics.

I also gave accolades to the opening ceremony of the Games, attesting to the Chinese authorities’ organizational capabilities. As we also know from countless reports, this has been engineered under a tightly controlled system. Such controls may be a metaphor for the broader and more complex country reality.  One which is incredibly rich in history, tradition, accomplishments, and also in contrasts: take the impressive achievements in economic management over the past 30 years, on the one hand, contrasting the pending governance challenges ahead, in areas such as freedom of expression, political contestability and control of corruption, on the other.

Of course, only the Chinese can and will determine what the reform priorities and model will be, and how to go about them, tailored to their own reality. Yet to this analyst it is evident that to have sustained and shared growth in the longer term will require addressing these pending governance challenges. Traditional trade policies and sound macro-economic management will not suffice.

                                                                                                                   Such contrast is evident when we look at the various components of the Worldwide Governance Indicators (WGI), for instance. Among over 150 emerging economies, China now rates among the top 35 in Government (and Bureaucratic) Effectiveness. Related to it, its macro-economic management has been stellar, which, together with its long heralded economic and trade opening up in recent decades, have propelled an impressive growth engine. By sharp contrast, China does not rate well on Control of Corruption, with roughly 90 emerging economies rating above China, and 63 others rating below. And China rates very low on ‘Voice & Accountability’ — the governance indicator capturing civil and political liberties and freedom of expression (including of the media).

But there may be room for hope on governance improvements. With the advent of the Beijing Olympics, there was the expectation that the media may be able to operate in China in a less constrained fashion than usual, but some observers point out that such increased media openness applies in particular to foreign outlets, and may not be long-lived (see here and here). And, as committed bloggers, we also want to know what the current status of official interference and censorship of the web and blogs really is. Just before the start of the Games, reporters decried the blocking of sites such as Amnesty International. Now it appears that there is access to this website and some others at the Games’ media center (as well as other areas of Beijing), yet other sites remain blocked.

And the IOC and the Chinese government had stated that there would be unrestricted internet access during the Games. But then Reuters quoted the IOC’s press chief: “I regret that it now appears [that the Chinese authorities] have announced that there will be limitations on website access during Games time….[I] understand that some IOC officials negotiated with the Chinese that some sensitive sites would be blocked on the basis they were not considered Games related.”

Clearly, this is all is still being played out; it is not clear cut but rather complicated. More to follow in a future blog entry.

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The very tight control exerted by Chinese authorities on every organizational and daily life detail of life in Beijing means that nobody is dubbing these as the ‘fun Olympics’.  Yet the opening ceremony did receive universal media accolades over the weekend, and pointed to the seven years of painstaking organization that went into it by the authorities.  

The weekend is over, though. Back to work, and to the rest of world reality.  Talk of the dazzling ceremony, which is now transitioning into the customary obsession with counting medals, ought not to hide the very serious governance challenges currently in our midst.  For starters, within sports, as a telling illustration: a dozen Russian athletes have now been suspended for doping.  While doping violations have afflicted athletes from so many nations, the ‘governance’ flag goes up when the problem is systemic and institutionalized: the New York Times points out that such wholesale doping indictment raises questions about corruption in Russian drug testing procedures as well as a systemic attempt by coaches or officials to violate the rules.

This brings up the tainting in recent years of professional baseball and cycling as sports due to the widespread use of performance-enhancement drugs.  There are many other ongoing corruption-related challenges in sports, of course.  For instance, an article in the UK’s Telegraph suggests that corruption through illegal betting can be a threat at the Olympics, in the aftermath of betting-related corruption in soccer and cricket elsewhere.  We could go on about misgovernance and corruption in sports, but others have written about it, and in a blog entry not that long ago I touched on these. 

So let us turn to something more important right now: the danger of ‘misgovernance flare-ups’ around the world, while the media and world leaders are enjoying the Olympics.  Witness the escalating war situation between Russia and Georgia in the disputed Caucasus region of South Ossetia, and spreading to other parts of Georgia, with hundreds of innocent civilian lives claimed in a short few days through aerial and ground bombings.  Obviously, more urgent and resolute international action is needed to resolve this crisis.

And just in case some leaders attending the Beijing Olympics did not notice, in Africa a coup d’Etat just took place the other day.  This was in Mauritania, and while it appeared to have been bloodless (in contrast to what is happening in the Caucuses), the first-ever democratically elected President of that country has been deposed after only a year in power, and his whereabouts, safety and condition are still uncertain.  A troubling reversal has taken place.

Speaking of Africa, in the international community (and media industry) we may also want to pay concerted attention right now to help towards some resolution of the acute leadership crisis in Zimbabwe, the country in the world which over the past decade has exhibited the most dramatic decline in their quality of governance.  Such dramatic decline in governance, threatening the lives and livelihoods of millions of citizens in Zimbabwe provides poignant evidence of the extent to which governance matters for development.  There also are major violations of human rights and misgovernance elsewhere, obviously: it is also critical to keep a concerted focus on the dire straits of the citizenry and refugees in Darfur, rather than turning a blind eye due to expedient political and commercial reasons. 

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The whole event was an eye opener for an IT amateur like myself.  It brought out some of the best ‘Tech’ stars around, and also some great young and creative new entrepreneurs and innovators.  It enabled me to dare to peer into future possibilities in putting IT to use in advancing governance and development.  At the same time, the gathering made it clear that Silicon Valley is a world in itself, one that can also benefit by further exposure and interaction with mere mortals far away.  Tellingly, one of the sessions I contributed to as a panelist was entitled ‘What the rest of the world wants from us’.  As if there is Silicon Valley (oversized within a large US), and then the residual rest. 

I started my contribution by showing an ‘upside map of the world’ to make the point that shifting our vantage point from North American-centric to Asian (and Latin, African) centric may not hurt as a way of forcing a ‘click refresh’ of our mental buttons regarding our world view (why does convention mandate North being up, South down?).   One of the attendees, Rebecca MacKinnon from Global Voices, has just posted a critique on Siliconitis. 

To the credit of the main organizer of Brainstorm Tech, the bright and indefatigable David Kirkpatrick, he was acutely aware of this ‘divide’, and had explicitly opted to bring it out in the open in some sessions, daring to invite non-IT, non-US experts on other subjects. [Disclosure: I obviously benefited from his approach, getting invited to the event to make contributions as one of such 'outsiders']. 

A number of sessions made me think further about ‘GonGo’, the more mobile, participatory and broader notion of interface between IT and governance than traditional ‘e-government’.  Years ago there was already a meaningful move from the traditional and static Web 1.0, where organizations constructed websites to post traditional know-how online providing web-access to information (the “read-only” web), to the more current Web 2.0, where the notion of the “read-write” web has been created to allow for all this data to be shared by the online community which vibrantly started to interact and provided the impetus for social networking. 

Now with the dawn of Web 3.0, we are now traversing to an exciting new stage, where the web is to be tailored by the people themselves for their own needs: some day virtually any citizen should be able to modify the website or resources.  It is people-centered, empowering citizens to innovate and find solutions in hyperspace using Web-hosted infrastructure – ‘the era of platforms’, as put by  Marc Benioff.  In stark contrast with the “proprietary IT” of the past where users needed to be locked into, now it is becoming possible to interface among various technologies and do “mashups” by using different platforms such as Google Maps, Flickr, YouTube, Twitter or Facebook.  Dapper and Yahoo’s Pipes are some of the first mashups-enablers, while Panoramio, Housingmaps and Twixtr give us a glimpse of what Web 3.0 would look like. 

Let us imagine further, though.  In my view, crucially for governance and development, when combining mobile technology, Web 3.0 and the power of  Generation Y, citizens everywhere will have more flexibility, freedom, and, crucially, the ability of actively participating in coming up with solutions.  Consider what is already going on now: Dell’s 2 billion conversations with clients through its Ideastorm website, where people provide real inputs about simple issues, such as voting for the look of the clear side panel for a new XPS model, or more complex solutions about how to swap laptop batteries without hibernating.  So far, Dell has put into action 30 ideas from this website. Similar cases are those of customers coming up with coffee cup improvements in MyStarbucksidea, or users answering most of the questions that other users post to experts in TurboTax.

No question: there is a major message to the aid community in this, including to large international organizations like the World Bank, which mostly are still somewhere between Web 1.0 and 2.0 – still viewing the web as a tool to provide a podium for internal notions and reports and for also listening to moderated comments from selected audiences, including having structured meetings with some representatives of civil society…

By stark contrast, if we take the potential of the combined power of ‘GonGo’ and Web 3.0 seriously, the era of static top-down management (and also ‘knowledge management’) should soon be over.  A totally different approach to problem solving may be envisaged, much more bottom-up and people centered, leveraged by the multiplying and organizing power of IT.  Imagine the potential power of mustering people’s participation and creativity in coming up with solutions to very difficult governance and development challenges rather than ’solutions’ decreed based on top-down templates from abroad or a government official.

It is not just a pipe dream.  Innovations such as Estonia’s TOM (‘Today I Decide’ in Estonian), where citizens propose, debate, approve and send to the government policies and legislation that they would like to implement, or South Korea’s Ohmynews, a news site created mainly by citizens’ contributions (which had a profound influence in the 2002 presidential elections), potently illustrate. They can be a starting point for a different approach to concrete progress on governance and development, and also presage a very different way of looking at knowledge and problem solving. 

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