The Power and the Money

What if America had been unpopulated in 1492?

The long Twitter debate between Pseudoerasmus and Gabe Mathy was triggered by an essay in Jacobin by my friend and colleague Suresh Naidu. He wrote a piece about what North America would have been like had the native population avoided decimation from infectious disease.

As a piece of counterfactual history, the essay has problems. The first is that we really do not know the pre-contact population of North America. Using his assumption of 0.5% population growth thereafter, we get a range of 26 million to 234 million native Americans today. Needless to say, those are radically different scenarios. The second is that the presence of large-settled native populations would have changed the dynamics of later immigration; would as many Europeans have arrived if North America had 45 million people in it around 1800? Finally, it seems likely that a large native population would have derailed the development of the institutions that sustained rapid North American economic growth. 

But as a polemic, the essay is quite successful. The latter two arguments unambiguously strengthen Suresh’s overall point, which is that there was nothing inherent in English culture that insured that its settler colonies would become rich and democratic places. The presence of an exploitable settled population would have permanently derailed the American experiment. Pseudoerasmus and Mathy were debating whether the English would have created an apartheid scenario (Mathy) or something more like Mexico (Pseudoerasmus). Neither seemed to doubt that the resulting society would be more oppressive and less democratic than what really emerged in the northern United States and Canada. Nor does Randy McDonald in his discussion of the piece. 

The essay raises an interesting question, however. If larger native American populations would have prompted the creation of a more extractive and generally nastier North American state, potentially with multiple rounds of civil war, what would have happened if there had been no native Americans when the Europeans first arrived in 1492? What would have been different?

It turns out that James Axtell was there in 1987.

First and foremost, Spanish colonization changes completely. Without the great civilizations in the highlands of Mexico and Peru, the Spaniards take much longer to move inland. Without the Taíno in the Caribbean, it is entirely plausible (albeit unlikely) that the Spaniards give up on the whole enterprise. Still, somebody would eventually set up Caribbean and Brazilian plantations based on African slavery but Mexico and Peru will remain backwaters. Nobody settles in the Río de la Plata until the 19th century. (And I suspect that it will be British settlers who land there, claiming it from a moribund Spanish empire.) With no silver fleets there is no Sir Walter Raleigh and his tropical adventures. So no British Guyana, just a vague area where Venezuela meets Brazil. Ditto, there is no French empire in Canada. No fur trade, no New France. 

Second, when the British finally do settle the eastern seaboard, later than in our world, their expansion is slower and messier. There are no American domesticated food crops. There are no native American agricultural techniques to learn. And with no seasonal burning by the native Americans, the forests are that much harder to clear. There is no native American medicine. No snowshoes. No toboggans. No longhouses. No canoes. And idiotic English hunters crashing around in bright colors and scaring off the game. In short, the colonists will have to invent a lot of wheels for themselves that in our world they got from the Native Americans and that is going to slow initial settlement by a lot, decades at the very least, possibly a century.

New York and Pennsylvania in particular will develop more slowly; without the profits from the Indian trade, it will be much harder to raise capital for settlement. North America will be even more skewed to the slave south.

Third, no independence until well after 1776. Once the eastern settlements are finally established, expansion is going to rocket westwards with no Indians, French, or Spanish to slow it down. Slaves will get sucked into the south even faster, but there will also be more escaped slaves lighting out to form colonies in the interior. Axtell postulates, plausibly but without a whole lot of solid evidence, that absent the Indian threat American society would be a lot less religious and lose its “garrison mentality.” In his words:  “The jeremiads of New England would certainly have been less shrill in the absence of the Pequot War and King Philip’s War, when the hostile natives seemed to be ‘scourges’ sent by God to punish a sinful people. Without the military and psychological threat of Indians within and without New England’s borders, the colonial fear of limitless and unpredictable social behavior would have been reduced.”

With much more evidence, he also postulates that with no wars, there is no need for Britain to raise colonial revenues. Nor is there any reason for Britain to restrict westward expansion. That is probably enough to head off the Revolution. And if later revolts should occur, the colonists will have two huge problems. First, they will be more separated from any martial habits. No militias, no real combat experience, just a vasty totalitarian infrastructure of slave catchers. Second, they will have no Indian opponents from which to learn guerrilla tactics. 

So by 1850 you have a British slave empire that sprawls over the entire continent, well into northern Mexico. (Who knows? Maybe it will British Americans heading south who discover the mines in Zacatecas and exploit them with slave labor.) The northern reaches will not have slavery, for the same reasons as in our world, but they may be less religious and less moralistic, more crassly commercial and more dominated by large landowners. 

You have a Caribbean and a Brazil that do not look entirely unlike our own ... but which have less European settlement. (With no natives to conquer and no native women to marry, Iberian migration will be slowed.) You have growing slave populations around the Mexican lowlands, parts of Central America, and possibly parts of the Peruvian coast ... but I would venture not much in the latter. There is no Panama Real or Camino de Cruces across Panama; those routes, primitive as they were, were constructed by native American slaves captured from Nicaragua.

American silver was less important to sustaining Spanish imperialism in Europe than many realize, but there will be no Price Revolution or Columbian Exchange ... and that will change Europe in unpredictable ways. 

But in America, well, things look ugly. If a Revolution does come, it looks likely to take the form of a Treasonous Slaveowner’s Rebellion against the Crown, but that assumes that a British government unexposed to the shock of the American Revolution will be as open to the movement of public opinion as our own. This British crown might not take any serious moves against the horror, and thus provoke no rebellion. The strain of New England moralism that produced abolitionism in our world might be weaker, or not there at all. 

Don’t be too harsh on Trinidad; the U.S. is not doing much better

It’s tempting to dump on Trinidad for undergoing a resource boom that failed (AFAWK) to lift median incomes by any substantive amount. Nor did that boom go into an impressive increase in public infrastructure. In fact, most of what you can say about it is that it left the nation better-housed and with more cars.

Which does not really look all that different than the United States over the past four decades of economic growth:

In fact, there is some evidence that Trinidad has managed to reduce poverty substantially. As I mentioned, the shantytowns have disappeared. A more detailed study by Karl Theodore and Ewan Scott and the University of the West Indies shows poverty falling from 29% in 1997 to 23% in 2005 and 18% in 2008. (They checked their estimates using data from the Survey of Living Conditions, which showed a drop from 24% to 17% in 1997-2005.) The drop is due, in large part, to subsidies provided by the state: a household with two working adults and three children that earned less than TT$18,000 a year (poverty is defined as TT$9,780) would qualify for a bit more than TT$43,000 in subsidies. (The full paper is here.)

My son redistributed some wealth by winning at dominoes (somehow he won half the matches!) but that was regressive.

Trinidadian governments, in fact, have not done a terrible job of insuring that the poorest of the poor share in the boom, even if they have failed its middle class. And in that it does not look all that different from the United States under the Obama administration, despite the corruption and mismanagement.

So there is a case for not judging to harshly.

But judging harshly, of course, is what I fully intend to do as these posts continue! Any thoughts or requests for more information about T&T?

Some slightly heavier parts of Trinidad’s recent boom

In the last post, I presented evidence that Trinidad’s recent boom had no impact on median household incomes. To be clear, that data is highly inconclusive. Without the time to process the raw data, we have no way of knowing if the 2014 estimate measures the same thing as the 1997 estimate.

So what other data can we use to measure changes in Trini living standards? Well, I went to the census and pulled up the percentage of households with access to various durable goods in 2000 (Table 7.16) and 2011. Here are the results:

These figures show some increase in living standards, but not a revolution. Internet access soars, but that is unsurprising and easily explained by a fall in cost. Ownership of washing machines and microwaves jumps a lot; enjoyment of air conditioning rises a lot in percentage terms but remains fairly low. 

Other indicators show more impressive gains, albeit from an already-high base. The number of households with access to private toilet facilities went from 87% to 94%. Access to electric lighting went from 91% to 98%. Direct access to piped water went from 61% to 76%. 

These increases were due to a housing boom over the decade: by 2011, fully 23% of all houses on the island had been built in the 21st century. (This number is a lower-bound estimate.) That is good! In fact, I noticed the housing boom back in 2007. In total, around 74,000 new units hit the market in 2000-11.

So that is where some of the money went: new and better houses and mundane public investments in sewers and electric wires. That should be captured in the GDP figures (as an increase in investment followed by a increase in output). But it is easy to imagine that it might not be captured in the figures for median income, unless housing costs were very carefully adjusted for quality and imputed benefits. (They were in 1976 and 1997; for 2014, I have no idea.)

Still, the housing boom, while real, is not quite as dramatic as it migh appear. The country built about 7400 units per year in the booming 2000s, but it also managed to build 4800 units per year in the boring 1990s. So not nothing, but not as big as might have been expected in a country whose real GDP doubled between 2000 and 2008. 

In short, the boom saw some improvement in Trinidadian living standards. And the improvement is visible on the ground: in the new suburbs that have spread out to the south and east or the traffic-choked roads. (More on that later.) We therefore have two potential explanations of where the money went:

1. The one citation we have for median income in 2014 may not be properly adjusted for non-monetary income, poor reporting, and improvements in housing quality;
2. Plenty of money went into improving the housing stock and associated public investments.

Those do not quite seem to be enough; after all, we are talking about a full doubling of GDP in a low-population growth country. Any thoughts?

The unbelievable lightness of Trinidad’s recent boom

Trinidad experienced a massive boom between 2000 and 2008. That boom was reflected in government revenues. And you could smell the optimism when I first started travelling here around 2007. 

So what happened? We know that government revenues soared, as did GDP growth between 1994 and 2008. But how much have people’s lives improved?

Turns out that’s not as easy to answer as you would think. Trinidad has a very sophisticated statistical apparatus. They do good work. But the country has recently been going out of its way to make that work hard to access. The central bank has a statistical database that is okay; the Central Statistical Office is miserable. 

So with the caveat that it is not clear that the data is comparable, due to varying methodologies to adjust for unreported data, here are some snapshots of median household income.

In 1980, the World Bank carefully analyzed the 1975-76 Household Budgetary Survey. After adjusting for under-reporting, it found that 57% of Trini households earned less than TT$499 per month ... which comes out to TT$120,466 per year in 2014 TT dollars. 

Some time later, Shlomo Angel used the Continuous Sample Survey of Population to estimate incomes in 1997. He found a median income of $132,110 in 2014 TT dollars. So, some improvement over what is generally regarded to have been an awful two-decade period: the 50th percentile in 1997 earned about 10% more than the 57th percentile did back in 1976.

Finally, Charisse Griffith-Charles (UWI) and Robin Rajack (IADB) estimated that in 2014 the median household income was $126,700 ... slightly down on the level from before the boom. (The paper is here; scroll to find it, then go to page 8.) 

Now, I am not sure how Griffith and Rajack produced their estimate or how it accounts for unreported or non-monetary income. So it is quite possible that median incomes have in fact increased since 1997. (It is shameful that comparable data is not readily available. It exists, but you have to write the CSO; even then, you will get it in raw form.) 

But the indications are that the recent boom did not produce a great increase in middle class incomes. Nor did it result in a dramatic upgrading of the island’s physical infrastructure, despite the massive rise in the resources available to the government. 

So where did the money go? Where is it going? More anon as I think on this question.

Why did the Trini government stop paying salaries in 2015?

Front page headline in the Sunday T&T Newsday?  “Easter backpay for 16,000 health workers: $636M blessing.” Short version: 16,000 government employees are going to receive US$5,923 per person in unpaid salaries. This in a country where average annual government expenditure on wages and salaries per employee came to US$10,606 in 2015 and US$9,930 in 2016. The arrears are big.

Health workers were not the only ones to go without pay: when I was last here in April, the big news revolved around the way the previous government had randomly suspended salaries. You heard that right: in response to falling oil prices, the government stopped paying salaries.

At first glance, this does not seem unreasonable. Consider the below chart: total government revenues (in millions of U.S. dollars) fell 30% in 2016, from $8.8 billion to $6.1 billion. (Figures are only available through August 2016; data is annualized based on the first eight months of data.) That is one hell of a fiscal adjustment!

But at second glance, it’s crazy. First, in 2014 had Trinidad a debt-to-GDP ratio of only 51%; by 2016, that had risen to only 58%. There was plenty of scope for borrowing to ease the transition. Second, Trinidad could have let the exchange rate depreciate, spreading the pain. Third, the arrears started proliferating in 2015, before the big meltdown in revenue. 

Finally, and here is the kicker: expense on wages and salaries barely went down. The government spent US$1.6 billion in 2015 and US$1.4 billion in 2016. Public employment slid from 150,600 to 144,100. Per worker expenditures barely budged. 

So what the hell?? Tens of thousands of people without salaries in 2015? Where did the money go? 

Obviously, people think corruption. It does not help that Jack Warner (of FIFA scandal fame) said that he witnessed PM Persad-Bissessar accept TT$8.3 million in checks from ... wait for it ... Ishwar Galbaransingh. Now, I would not trust Jack Warner at all about anything ... but the atmosphere here is febrile, considering the apparent mismanagement of the Persad government. 

AFAICT, the new government is on track to meet its commitment of clearing the arrears by the end of this calendar year. But the whole episode is inexplicable. You cannot find much evidence of the arrears in the government accounts (which are putatively on a cash flow basis) and you cannot find much evidence in the audit accounts.

But you can find lots of evidence among the government workers who were not paid and the current politicians who seem to be moving heaven and Earth to make them whole! 

The new government could do a lot more to make its accounts transparent. It is not doing so. So while employees are getting paid (that I can confirm, although contractors are still SOL) there still seems to be no good understanding of just what happened last year. No wonder cynicism is higher than I have ever seen it, and this is not exactly an idealistic trusting place to begin with. 

Cuba without Fidel, a retrospective counterfactual

A few months ago, I complained about an article that asked what effect independence had on Ireland without addressing how the country would have done under continued Home Rule. Doug Muir stepped up to the plate with a simple counterfactual: imagine that the Irish civil war depressed GDP about 20% and that the country would have grown at U.K. rates as part of the U.K. 

Is there another way? Well, yes there is! For a research project, I’ve been learning about a technique called “synthetic controls.” Normally we can’t run an experiment in which we take a country just like Ireland but keep it inside the U.K. while comparing it to the one outside. We can look for countries that look like Ireland, but countries rarely have a convenient twin sitting around for comparison. So what to do?

Well, one is to do the best we can with the comparison’s available. This will often take you fairly far.

Another is to compare the country in question with itself before the event you’re interested in. This can also take you fairly far, but of course raises all sorts of problems. For example, it assumes that past performance predicts future results, which is not always true. It also assumes that the changes you’re interested in (in the Irish case, income levels) are not caused by the same underlying forces that caused the event you’re interested in (in the Irish case, independence). 

The final one is to use synthetic controls. When used for cross-country estimates, a synthetic control takes a bunch of countries that look more-or-less like the country that you’re interested in and calculated a weighted average of those countries that looks as close as possible like the country you’re interested in. You can then see how that mythical control country performed after a treatment compared to the real country. For example, if you wanted to see the effect of Irish independence, you could take a weighted average of British regions that looked very close to Ireland in 1914, and then compare real Ireland to the performance of that weighted average of British regions. In that case, the experiment would be with remaining fully in the U.K. rather than Home Rule, but it could still tell you quite a bit. (Hey! Anyone want to write that article with me?) 

It turns out that someone has run that study for Communist Cuba! In 2013, Felipe Ribeiro, Guilherme Stein, and Thomas Kang did just that. They created a synthetic Cuba that was 55% Mexico, 15% Honduras and 30% El Salvador. These were not the countries that I would have imagined, but they were what provided the best fit with the real existing Cuba between 1929 and 1959. They then compared the GDP per capita of synthetic Cuba with real existing Cuba and found this:

By 1970, the GDP per capital of real Cuba is half that of synthetic Cuba. (The right axis is logged.)

What are the problems with this analysis? Well, three. First, while they got a good match on GDP per capita and the terms of trade, they do not come as close on two other key indicators. Synthetic Cuba had a lot more people in agriculture than real Cuba (68% versus 41%) and much higher illiteracy (65% versus 35%). Second, Mexico in particular was subject to radically different trade shocks than non-Communist Cuba would have been, whereas the analysis assumes that all post-1959 external shocks are identical. Finally, it is not clear that a non-Communist Cuba would have followed the same mix of extreme protectionism and hostility-to-FDI that Mexico followed between 1964 and 1974. (Plus, once the Cubans begin receiving large-scale Soviet subsidies around 1968, then the whole analysis goes out the window.)

That said, most of the problems cited above point to a real non-Communist Cuba outperforming synthetic Cuba. They are not fatal. And the authors admit that their study measures only counterfactual GDP per capita; educational attainment grew faster in Cuba than anywhere else. (Although Costa Rica matched Cuba in terms of reducing illiteracy.)

In short, they find about what you would expect: the Revolution made Cuba poorer by a large amount. What that does not measure, however, is the well-being of poorer Cubans as opposed to the poorer residents of synthetic Cuba. That experiment remains for another day. 

P.S. I almost called this post a “tribute,” but Fidel was at the end of the day a bloody dictator and doesn’t deserve one. So I called it a “retrospective” instead. 

Colonize England! Or, a brief word on Brexit and Scomain

 The Kingdom of the Netherlands consists of several countries and a few overseas municipalities. Only one of them, the eponymous one sitting on the northwest shore of the European peninsula, is part of the E.U. The rest are overseas territories, including the special municipalities. 

So lets look at those special municipalities and the E.U. They consist of the islands of Bonaire, St Eustatius and Saba. Dutch citizens on those islands vote in Dutch national elections. But they do not live in the European Union. What does that mean?

First, there are border controls between the special municipalities and the European Netherlands. Land at Schipol, go through customs and immigration just like any European citizen returning from a foreign country. 

Second, they are not in the single market. They can export duty-free to the E.U. (see Article 43) but with limits: (1) Re-exports can only be sent duty-free if the overseas territory imposes trade taxes at least as high as European tariffs (Article 45); and (2) services are not included (Article 51).

Third, they can establish employment restrictions on non-Dutch citizens. (In point of fact, they can also restrict Dutch citizens born elsewhere in the Kingdom.)

So all Parliament needs to do is declare England to be an overseas territory of the United Kingdom! The English could still vote for Parliament. In fact, they would still be E.U. citizens, strictly speaking. But Parliament could restrict non-British (or even non-English) from working in England.

Of course, England-based financial firms would no longer be able to sell financial services across Europe ... but British firms based in Scotland certainly would. Moreover, the U.K. would remain an E.U. member, and thus retain its voice in Brussels debates over financial regulation. As my GWU colleague, Christopher Mitchell, has pointed out in the Washington Post, retaining that voice is vital for the sector to thrive.

Now, I do not want to minimize the problems: other than retaining duty-free access to Europe, English manufacturing firms would face all the same non-tariff barriers faced by, say, Turkish companies. The dislocation of having financial firms move to Scotland is not nothing. And you would need to institute a customs boundary along the line between England and Scotland. 

But it keeps Scotland in both Unions and keeps Britain at the European table, although its voting weight would drop considerably, given that English residents would no longer count.

There might be a problem with doing this unilaterally, however. Annex II of the consolidated Treaty on the Functioning of the European Union explicitly lists the overseas territories; London may not be able to add to them unilaterally. But it would be a legal mess if it tried; I have no idea how the European Court would rule. 

Somehow I do not think this will happen, but I am not sure why I do not think it will happen. After all, something much weirder just did happen. 

Two of these places are not like the others

 So the intrepid data team at the Economist collated all internet mentions of the term “51st state” and came up with the following map:

Don’t ask me to explain the references to existing states. But for most of the foreign countries, I get it. Australia, Britain, Japan, very close treaty allies. Canada and Mexico, in NAFTA. (Canada’s also a very close treaty ally.) Taiwan, special relationship. Caribbean, Philippines, Ireland, lots of emigrants to the U.S. (Bora Bora and Brunei, that’s just weird, but whatever.) 

In fact, I’m surprised that more Latin American countries didn’t crack the top ten: Colombia, El Salvador and Panama have a right to feel slighted. 

But what are Russia and North Korea doing on this list?? Who refers to them as America’s 51st state? And why?

Misleading headline award: American business do not face a “culture gap” with Cuba

 Despite the criticism, the New York Times is better than it has ever been. And it is still the best newspaper on the planet in any language that I read. (Which would, if you insist, cover English, Spanish, Portuguese and French. I do not understand spoken French.) But its headline writers have been falling down on the job lately.

First they suggest that Nicaragua is fighting an insurgency. But when you read the article, it becomes immediately clear that is not what’s going on. 

Now we learn that “Culture Gap Impedes U.S. Business Efforts for Trade With Cuba.” Fascinating! I would have imagined that the U.S. would have had the smallest possible culture gap in the world with Cuba. After all, we have Florida! And they have baseball. Perhaps they are talking about some Communist mentality? Fascinating! After all, Cuba experienced one the few genuine Communist revolutions not imposed by the Red Army. It might have altered the mindset deeply! In fact, it almost certainly did. So I started to read with fascination.

Only to learn that the problem is that “threading the needle between Cuba’s rigid rules and the restrictions that the United States continues to impose is tricky.” They do toss in one paragraph about Americans baffled by slow Cuban official decision-making.

Uh ... legal problems and a slow bureaucracy do not a culture gap make, fellows. 

Dictators, revisited

 Four years ago this week, I had a debate with John Quiggin over at Crooked Timber. Briefly, he said that dictatorship was on the way out as a form of government. I sharply disagreed. Four years seems like a reasonable amount of time to circle back and ground-truth.

Here is the original post. Take a moment to click through, so that we’re all agreed on definitions. Good? Okay, then: Who are the world’s remaining dictators, and have their numbers changed since 2011? The 2011 list is below, with original comments in italics and 2015 updates in parentheses.

Angola: Dos Santos has been the President nonstop since 1979. There are significant limits on his power, but IMO he qualifies. (Dos Santos celebrated 35 years in power last year. NO CHANGE.)

Azerbaijan (NO CHANGE)

Belarus (NO CHANGE)

Cambodia: Hun Sen, a bland and retiring little man, has ruled unchallenged since the middle 1980s. (He rules still. NO CHANGE.)

Cameroon: Paul Biya since 1982. The country has kept the trappings of a democratic republic, including opposition parties, but Biya is in charge and he’s not going anywhere. (He hasn’t gone anywhere. NO CHANGE.)

Chad (It’s still Idriss Déby. NO CHANGE.)

Congo Republic (NO CHANGE)

Congo, Democratic Republic: President Kabila, son of the late President Kabila, is likely to stay in power for the foreseeable future. He’s in a tie with Aliyev of Azerbaijan for youngest dictator — they’re both just 40. (And now they’re both 44. But otherwise, NO CHANGE.)

Cuba: Raúl, not Fidel. It’s surprising how many people think it’s still Fidel. (NO CHANGE.)

Djibouti (NO CHANGE.)

Equatorial Guinea: This is a nasty one. Doesn’t get much attention, of course. (It’s still nasty. NO CHANGE.)

Eritrea: Afewerki is another nasty one. A shame, since his rule started with really high hopes. (NO CHANGE.)

Ethiopia (Ethiopia’s long-term dictator Meles Zenawa died in 2012. However, his successor, Hailemariam Desalegn, has been governing in much the same manner — centralized one-party rule with no public opposition or criticism. In May 2015 Ethiopia held parliamentary “elections”; the ruling party won 90% of the seats and its allies took the rest.  Ethiopia’s human rights record continues to be dire, and it looks like Desalegn has settled in for the long run. NO CHANGE.) 

Kazakhstan (NO CHANGE.)

North Korea (Supreme Leader Kim died in late 2011, and was replaced by his son, Supreme Leader Kim. NO CHANGE.)

Rwanda (NO CHANGE.)

South Sudan: I’m jumping the gun here, because the country of South Sudan is just a few months old. But President Kiir has already made it pretty clear that he’s not going anywhere. (And he hasn’t. Four years later, Kiir is a post-colonial African dictator in the classic style. But the country is in the middle of a civil war, and therefore by definition not stable. So ... CHANGE.)

Sudan (NO CHANGE.)

Syria: At least for the nonce — I think Assad has a decent chance of sticking around. (And four years later he is still around. You can argue whether he’s a proper dictator, though, as he has now lost control of about half his country’s population and ¾ of its territory. I’ll give this CHANGE.)

Tajikistan (NO CHANGE.)

Turkmenistan (NO CHANGE.)

Uganda: To nobody’s surprise, President Museveni won a fourth term a few months ago. (And he’ll likely win a fifth next year. NO CHANGE.)

Uzbekistan (NO CHANGE.)

Zimbabwe: Robert Mugabe, still hanging in there at age 87, has been the world’s oldest dictator for a while now. (And, good grief, he’s STILL hanging in there at age 91. NO CHANGE.)

So, of 24 clear dictatorships in 2011, two have perhaps slipped out of that category — South Sudan is in the middle of a civil war, and Syria’s Assad has lost control over much of his country.

Did we overlook anything in our original list? Gambia has a good case: Yahya Jammeh came to power in a 1994 and shows no sign of leaving soon. So did Burkina Faso, but Blaise Compaoré fled at the end of 2014. Acting retroactively, that would make Burkina the third country to have left dictatorship since the original post. 

Have any new dictatorships been added? We would say yes, three. Two of these are pretty minor and one is not minor at all. The minor ones are Fiji and Togo, both of which I listed as borderline cases back in 2011. In Fiji, the Prime Minister operates within what looks like a British-style constitutional framework, but a permanent legislative supermajority, a hand-picked judiciary and an unfree press means he can basically rule at will. In Togo, President Gnassingbe has just won another “election” and looks good to stay in power indefinitely.

The not so minor one is Russia. Back in 2011 I said that Russia was authoritarian, but not a dictatorship. But in the last four years, Russia has become dramatically more illiberal, power has been ever more centralized, multiple critics and opponents of the regime have been prosecuted, imprisoned, or murdered outright, and the cult of personality around Putin has grown extreme. All of these things were just getting started in 2011, but they’ve moved very rapidly since. At this point we think it’s reasonable to call Russia a dictatorship.

We also have two new borderline cases. The small one is Burundi, where President Pierre Nkurunziza plunged his country into unrest after what looks to have been a power grab. He hasn’t established full control, however, so it’s not a dictatorship and looks unlikely to become one. The big one is Venezuela. A while back, we argued that the Polity IV database had jumped the gun by classifying the country a dictatorship. It still isn’t there yet — President Maduro does not rule by decree and he is facing contested legislative elections in December. But the trend since Chavez’s death has been sharply authoritarian. The government has banned opposition candidates, refused to permit foreign observers, and arrested opposition leaders. We hesitate to call it a dictatorship yet, however — partly because this trend is fairly recent, and partly because it is not clear how much power is really consolidated in President Maduro’s hands. The December elections should provide strong evidence one way or another.

In summary: two medium-size countries have fallen out thanks to ongoing civil wars. One small one has ousted its dictator. Meanwhile two small countries and one large important country have joined the club.

In other words, dictatorship does not seem to be on its way out as a form of government.

Worthy Jamaican experiment

 Before pulling out for personal reasons, I was involved in a consulting job in Albania. The goal was to reduce electricity theft. One of our recommendations was kind of obvious: to reduce theft, you need to make it hard for people to steal. You need to get out and yank illegal connections and keep yanking them.

Would that it were so easy. The tricky part is twofold: (1) Getting the money to pay the people who need to check and yank; and (2) getting the political will to cut people’s electricity. 

But now it seems as though Jamaica’s utility is doing just that! 

Jamaica’s sole electricity provider says crews have pulled down nearly 10,000 illegal connections to the power grid and police have arrested over 300 people for theft so far this year. In a Sunday statement, the Jamaica Public Service Co. says it is “relentlessly pursuing” electricity thieves in neighborhoods where a tangle of illegal wires can often be seen tapping into power lines. In one town in Jamaica’s St. Catherine parish, residents fled their homes last week to avoid arrest as power crews removed about 850 illegal connections.

Now, to be fair, total losses in Jamaica are just 26%, way less than in Albania. But still, the experiment bears watching. 

Petrocaribe: What is it good for?

 We have discussed Petrocaribe a few times on this blog. The basics are here. To recap, under the scheme, Venezuela sells Caribbean countries oil on credit. At current prices, receiving countries pay 70% up front; the rest they can pay off over 25 years at 1%. (Some of the new adherents to the agreement pay 2%.) In addition, the recipients can pay in kind, if they desire: Guyana has paid in rice and the Dominican Republic in beans. (Page 6.)

The Caribbean buyers have to establish state-owned entities to handle their end; the price difference, in effect becomes a long-term cheap loan to the entity, which uses it to finance development projects. That is how Nicaragua uses Venezuelan money to pay for the prep work on the Gran Canal.

Occasionally the Venezuelans give an even bigger subsidy than that. In 2011, for example, Caracas decided that countries participating in its subsidized oil schemes would not be liable for the royalty payments that PDVSA owed the Venezuelan government. That effectively transferred $13.1 billion to Venezuela’s putative allies. (It is not well-known that Venezuela has extended this arrangement to non-Caribbean countries: frex, here is Uruguay’s. Here is Paraguay’s.)

And what does Venezuela get?

Not much. Caricom just declared that they support Guyana in its border dispute with Venezuela. (It is a big border dispute; Caracas claims half the country.)

This is only the latest failure in Venezuela’s attempt to buy influence. In 2009, the Caribbean countries politely told the Bolivarian Alliance that they were not interested in military integration, they would stick to their own Regional Security System, thank you. In 2010, when Nicaraguan troops blundered into territory claimed by Costa Rica, the West Indian nations backed Costa Rica rather than their fellow Bolivarian in Managua. 

Hey! St. Lucia is backing Caracas against U.S. sanctions!

Oh, wait, that article says that some individual St. Lucians back Caracas. 

There must be something.

ADDENDUM (March 15): No, not Security Council membership. In the 2014 UNSC election, Venezuela won its seat on a vote of 181-1 with no serious opposition; Caribbean support was entirely irrelevant.

The Philippines move right!

 Carlos Yu and I have a long-term plan to write a book on the Philippines under American rule. But it won’t be done until 2018 at the earliest.

One thing that we discovered while writing our book on the Panama Canal was that Panamanians drove on the left until April 15, 1943. The reasons for the changeover are obvious; less so is why Panama started out on the left. The influx from the British West Indies is often cited. (Colombia did not start to regularize its traffic codes until Panama had already seceded but appears to have always driven on the right.) Argentina drove on the left between 1889 and 1945. The first traffic code, from 1872, mandated driving on the right but the country switched to the left in emulation of the British-built railroads. (You can still see this in the Buenos Aires subway.) It moved back to the right on June 10, 1945.

But neither of us had any idea that the Philippines also drove on the left until March 10, 1945! That is more than slightly amazing. The vast majority of cars were imported from the United States. So how did the rule survive so long? Even more amazing, the reason for the shift given in the text of the executive order implies that imported cars had been physically reconfigured to right-hand-drive before the switch:

EXECUTIVE ORDER NO. 34: AMENDING TRAFFIC REGULATIONS FOR VEHICLES

WHEREAS it is deemed advisable to change the existing regulations providing for the driving of vehicles on the left side of the road so that the vehicle traffic in the Philippines shall conform with the practice of driving on the right side of the road obtaining in most countries of the world;

WHEREAS such a change would bring about certain economic advantages to the people of the Philippines in that it would reduce the price of motor vehicles imported into the Philippines from the United States;

WHEREAS during the present emergency the great majority of the motor vehicles of the United States Army used on the roadways in the Philippines are right-hand driven and the drivers thereof are accustomed to driving on the right side of the road; and

WHEREAS the present affords the most propitious opportunity to effect this desired change;

NOW, THEREFORE, by virtue of the powers vested in me by the Constitution and the laws of the Commonwealth of the Philippines, particularly Commonwealth Act No. 671, I, Sergio Osmeña, President of the Commonwealth of the Philippines, do hereby order;

1. That section 60 of the Revised Motor Vehicle Law, Act No. 3992, be amended, as it is hereby amended, to read as follows:

“SEC. 60. Drive on right side of road.—Unless a different course of action is required in the interest of the safety and security of life, person, or property, or because of unreasonable difficulty of operation in compliance herewith, every person operating a motor vehicle or guiding an animal drawn vehicle on a highway shall pass to the right when meeting persons or vehicles coming toward him, and to the left when overtaking persons or vehicles going the same direction, and, when turning to the left, in going from one highway into another, every vehicle shall be conducted to the right of the center of the intersection of the highway.”

2. That all other sections or parts of the said Revised Motor Vehicle Law and amendments thereof shall be considered as amended or modified as they are hereby amended or modified accordingly so as to conform with the provisions of the Executive Order; and all other provisions of law inconsistent with or contrary to the provisions of this Executive Order shall be considered repealed as they are hereby repealed.

Done at the City of Manila, this tenth day of March, in the year of Our Lord, nineteen hundred and forty-five, and of the Commonwealth of the Philippines, the tenth.

SERGIO OSMEÑA
President of the Philippines

Unless most American imports had been reconfigured before sale in the Philippines, then there is no reason why switching the side you drive on would make imports cheaper. Today the Bahamas drives on the left but enforces no such rule; neither does the U.S. Virgin Islands. Was there a mechanics lobby group in the Philippine Islands that insisted on reconfiguring imports before 1945? 

There has got to be a story here.

A cultural exchange

 Courtesy of Emiliana Duarte, I give you the Venezuelan ambassador to the Republic of Trinidad and Tobago:

She is very good at all parts of her job. Trini-Venezuelan relations are better than they have been for years. 

The British Commonwealth lives on

 The British Privy Council just handed the opposition in St. Kitts and Nevis (SKN) a huge victory. Basically, the Labour government altered electoral boundaries on January 16, one month before the next general election. The fragmented opposition cried foul. (There is something quite amazing about the idea of a “fragmented opposition” in a country of only 55,000 people.) So they sued.

A judge immediately granted an injunction. The problem was that she granted it too late. Governor-General Edmund Lawrence signed the redistricting law at 6:20pm, whereas the judge issued her order at 7:38pm. Since you aren’t supposed to be able to injunct an action that’s already been taken, the injunction was discharged on January 27th.

But that was not the end of that!  SKN, you see, is a part of the Organization of Eastern Caribbean States. The OECS has a common judicial system, so the SKN opposition took the case to the Eastern Caribbean Supreme Court in St. Lucia. The opposition argued that Section 119, Article 1 of the Constitution of the Federation of SKN defined “proclamation” as “a proclamation published in the Gazette.” Since the law had not been published in the Gazette, they argued, the injunction was valid.

The Eastern Caribbean Supreme Court found for the government. “The Constituency Boundaries Commission reviewed the boundaries of the constituencies in the Federation and recommended alterations to the constituency boundaries; a draft proclamation giving effect to the recommendations of the Commission was thereafter approved by the National Assembly; the Governor General then signed a proclamation which (according to the evidence of the Attorney General) was published in the Official Gazette. All of this happened on Friday, 16th January 2015, and though one may say that the process was hurried through by the relevant authorities to gain an unfair political advantage, that is an issue of political morality and not constitutional validity, which is not suitable for judicial enquiry.”

But that was still not the end of that! SKN, like most of the Commonwealth Realms of the Caribbean (save Barbabos but including Trinidad), still uses the British Privy Council as its highest court of appeal. And so, the case went to London. Where the opposition won! 

I can’t wait to read the final decision.

Anyway, this is not a huge piece of news. After all, SKN is just a small group of islands with only 55,000 people. But it is a striking example of how the microstates of the Caribbean survive by contracting out so many state functions to other polities and organizations, be it the OECS, the CSME, or the United Kingdom.

Our declaration of not-quite-war on the Islamic State

 Full text here. Minus stylistically-awful preamble below:

Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That

SECTION 1. SHORT TITLE. This joint resolution may be cited as the “Authorization for Use of Military Force against the Islamic State of Iraq and the Levant.”

SECTION 2. AUTHORIZATION FOR USE OF UNITED STATES ARMED FORCES.

(a) AUTHORIZATION.—The President is authorized, subject to the limitations in subsection (c), to use the Armed Forces of the United States as the President determines to be necessary and appropriate against ISIL or associated persons or forces as defined in section 5.

(b) WAR POWERS RESOLUTION REQUIREMENTS.—

(1) SPECIFIC STATUTORY AUTHORIZATION.—Consistent with section 8(a)(1) of the War Powers Resolution, Congress declares that this section is intended to constitute specific statutory authorization within the meaning of section 5(b) of the War Powers Resolution.

(2) APPLICABILITY OF OTHER REQUIREMENTS.—Nothing in this resolution supersedes any requirement of the War Powers Resolution.

(c) LIMITATIONS.— The authority granted in subsection (a) does not authorize the use of the United States Armed Forces in enduring offensive ground combat operations.

SECTION 3. DURATION OF THIS AUTHORIZATION. This authorization for the use of military force shall terminate three years after the date of the enactment of this joint resolution, unless reauthorized.

SECTION 4. REPORTS. The President shall report to Congress at least once every six months on specific actions taken pursuant to this authorization.

SECTION 5. ASSOCIATED PERSONS OR FORCES DEFINED. In this joint resolution, the term ‘‘associated persons or forces’’ means individuals and organizations fighting for, on behalf of, or alongside ISIL or any closely-related successor entity in hostilities against the United States or its coalition partners.

SECTION 6. REPEAL OF AUTHORIZATION FOR USE OF MILITARY FORCE AGAINST IRAQ. The Authorization for Use of Military Force Against Iraq Resolution of 2002 is hereby repealed. 

Regarding that preamble, when did the endless list-of-whereas style become the norm? They’re really horrible to read. The AUMF for the Spanish American War limited itself to one:

Whereas, the abhorrent conditions which have existed for more than three years in the Island of Cuba, so near our own borders, have shocked the moral sense of the people of the United States, have been a disgrace to Christian civilization, culminating, as they have, in the destruction of a United States battleship, with 266 of its officers and crew, while on a friendly visit in the harbor of Havana, and can not longer be endured, as has been set forth by the President of the United States in his message to Congress of April 11th, 1898, upon which the action of Congress was invited:

Therefore, Resolved, by the Senate and House of Representatives of the United States of America in Congress assembled,

First. That the people of the Island of Cuba are, and of right ought to be, free and independent.

Second. That it is the duty of the United States to demand, and the Government of the United States does hereby demand, that the Government of Spain at once relinquish its authority and government in the Island of Cuba, and withdraw its land and naval forces from Cuba and Cuban waters.

Third. That the President of the United States be, and he hereby is, directed and empowered to use the entire land and naval forces of the United States, and to call into the actual service of the United States, the militia of the several States, to such extent as may be necessary to carry these resolutions into effect.

Fourth. That the United States hereby disclaims any disposition or intention to exercise sovereignty, jurisdiction, or control over said Islands except for the pacification thereof, and asserts its determination, when that is accomplished, to leave the government and control of the Island to its people.

Approved, April 20, 1898.

Returning to the current proposal, what is “enduring offensive ground combat operations” is supposed to mean? Sounds to me like Congress is authorizing anything including invasion, as long as we do not stay there forever. Not that the current administration has any desire to invade, of course. But why spell out the list of grievances in agonizing length only to leave vague the limits on the action? Go ahead, Congress! Take a whole page to spell out exactly what’s okay and what’s not!

I also have to wonder why there are no geographic limits on the current resolution. For example, “Within the territory of the Syrian Arab Republic or, with the permission of their internationally-recognized governments, the territory of any States bordering on the Syrian Arab Republic.” Instead we got, well, nothing. (FWIW, the 1898 resolution was also pretty vague. We did, however, follow it up with an actual declaration of war two days after Spain declared war on us.)

Is this just kabuki?

It is a good thing to repeal the 2002 AUMF. And it is a good thing for Congress to weigh in. But this strikes me as an open-ended check.

The real new thing here is the three-year limit ... which I think is not kabuki. But I am open to arguments.

The Caribbean can survive the collapse of Petrocaribe

 There has been a lot of worry that the increasingly penurious Venezuelan government may cancel the Petrocaribe program that helps Caribbean nations (and El Salvador) buy Venezuelan oil. The fear is that fragile Caribbean economies will collapse if Caracas withdraws its support.

I think these worries are misplaced.

Petrocaribe finances Caribbean oil purchases on a sliding scale. When the price is between $30 and $40 per barrel, it will finance 25% of the purchase price. When the price is $90 per barrel (as it was back in July), Petrocaribe finances 40% of the purchase price. The terms are laid out in Article IV the Petrocaribe Cooperation Agreement. 

Upshot: the price of Venezuelan oil is currently $39 per barrel with no subsidy. Six months ago, Caribbean countries had to shell out $59 in cash for a barrel of oil valued a hair below $99. It is true that if Petrocaribe holds the Caribbean countries will have to stump only $29 in cash ... but at the end of the day, $39 < $59.

Meaning that even if Venezuela abandons its Bolivarian ideals and dumps its Caribbean allies, the Caribbean countries will still be better off than they were last year.

Can Venezuela’s creditors grab Venezuelan assets in a default?

 If PDVSA defaults on its debts, then yes. It would be a standard commercial dispute. Once a court made its final ruling, U.S. officials would seize Citgo shares, sell them, and give the proceeds to the creditors after deducting expenses and taxes.

But if the Bolivarian Republic defaults, not PDVSA, then it gets harder. Let’s say I own shares in a company and I default on my debts. Creditors can go after my shares in the company, but they cannot go after the company’s assets. This is true even if I am the only shareholder in the company. (Limited liability goes both ways.)

This principle applies to companies owned by foreign states. An official House of Representatives report (see footnote 185 on page 196) bluntly stated: “Section 1610(b) [of the Foreign Sovereign Immunities Act of 1976] will not permit execution against the property of one agency or instrumentality to satisfy a judgment against another, unrelated agency or instrumentality. There are compelling reasons for this. If U.S. law did not respect the separate juridical identities of different agencies or instrumentalities, it might encourage foreign jurisdictions to disregard the juridical divisions between different U.S. corporations or between a U.S. corporation and its independent subsidiary.” 

So far, so clear. Citgo is safe from creditors of the Venezuelan government. 

But here’s the thing: I can’t hide from creditors by creating a separate me-controlled firm and transferring my assets to it. In the words of the Supreme Court, “where a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created, we have held that one may be held liable for the actions of the other.” Morever, there is a “broader equitable principle that the doctrine of corporate entity, recognized generally and for most purposes, will not be regarded when to do so would work fraud or injustice.” 

In 1983, the Supreme Court specifically extended that principle to foreign state-owned entities in First National City Bank v. Banco para el Comercio Exterior de Cuba (Bancec).

Here’s the backstory. In 1960, Bancec arranged to sell some Cuban sugar to a Canadian company. Citibank issued a letter of credit to Bancec for the sugar. Bancec handed it to the Cuban central bank  (the Banco Nacional) for collection. On September 15, 1960, the Banco Nacional presented the letter to Citibank. The next day, the Cuban government nationalized all Citibank branches. (This was remarkably poor timing.) Citibank, not surprisingly, did not pay Bancec. Bancec sued in the Southern District of New York. The Cubans let the claim sit around until 1975. When they picked it again, they argued that Bancec was an independent state-owned company; why should it be liable the Cuban government’s actions?  

The case went all the way up to the Supreme Court. The Supreme Court upheld the lower court ruling: “Bancec is not a mere private corporation, the stock of which is owned by the Cuban government, but an agency of the Cuban government in the conduct of the sort of matters which even in a country characterized by private capitalism, tend to be supervised and managed by government. Where the equities are so strong in favor of the counter-claiming defendants, as they are in this case, the Court should recognize the practicalities of the transactions. . . . The Court concludes that Bancec is an alter ego of the Cuban government.”

Alright, then. Easy! It might be impossible to seize Citgo assets because Citgo is clearly not an agent of Caracas, but it might be possible to take Citgo shares away from PDVSA. After all, it would not be hard to argue that PDVSA has not been an independent commercial entity since 2002. 

So I ran this past a lawyer friend of mine who works on this stuff.

And ... oh boy ... PDVSA does not own Citgo directly. It owns it through PDV America Inc which is in turn a subsidiary of PDV Holding Inc, both incorporated in Delaware. And those two companies are not legally beholden to PDVSA. 

So now you have to show that PDVSA has no independence and that PDV Holding Inc and  PDV America Inc have no independence. That ain’t so easy. In short, Lex is too sanguine about the prospects for seizing Citgo. It could happen, and my lawyer friends think it will happen ... but only after a long delay.

But there’s another problem! Venezuela has ICSID judgments against it. Unless Venezuela pays them, then ExxonMobil and ConocoPhillips will be sniffing around those assets. Their claims rank higher than claims by bondholders, since uncompensated expropriation, unlike default, involves a clear denial of justice. 

In short, you have a mess. Sure, the fact that Citgo is there will make the Bolivarian Republic think six times about defaulting. But the economic mismanagement in that country is of such a scale (sorry, Shah8 ☺) that Caracas no longer really has any other options.  

Now, creditors have another recourse.

The creditors could go after Venezuelan oil exports directly. There is a recent history of this. In 2007, Texas courts ordered American companies to turn over not only royalties but also physical oil due the Congolese Republic. (See here and here; the decision itself is here.) Now the legal approach used in Texas did not have legs. But to be fair, the suits were quite different than the suits that might happen regarding Venezuela. 

The Venezuelans could sell their oil at the point of embarkation and try to hide it, but that opens up foreign refineries to lawsuits. With the world awash in oil, many will be behooved to avoid going anywhere near the Venezuelan stuff. 

So here is the upshot: a default will cause much pain in Venezuela but it will not make creditors whole. Having Citgo as a target does not cancel out all the problems with legal enforcement of sovereign debt because even if the creditors win it will take forever and a day to collect. But because of the legal challenges to oil sales, default be a big enough disaster for Venezuela that the country will likely make an offer that 75% of its creditors will accept. They will then abandon any attempts to go after Citgo. 

Given what Venezuelan bonds are yielding, I’m tempted to buy them. How bad could the restructuring be?

Dumb and dumber as the U.S. tries to overthrow the Cuban government

 Remember that dumb USAID plan to create democracy in Cuba by bringing it “Twitter-like” social media? Well, it turns out that USAID managed to be even dumber: it decided to use an HIV-prevention workshop as a front to recruit young Cubans for anti-government activities.

Yeah, you read that right. USAID, in another attempt to imitate the CIA at its silliest, decided to use an anti-HIV campaign to work against the Castro government. It is like something out of one of Vladimir Putin’s fever dreams. 

And it was carried out with typical competence. From the A.P.: 

In the HIV workshop effort, the AP’s investigation found the Latin American travelers’ efforts were fraught with incompetence and risk. The young workers nearly blew their mission to “identify potential social-change actors.” One said he got a paltry, 30-minute seminar on how to evade Cuban intelligence, and there appeared to be no safety net for the inexperienced workers if they were caught. In all, nearly a dozen Latin Americans served in the program in Cuba, for pay as low as $5.41 an hour ...

Drawing on documents and interviews worldwide, the AP found the travelers program went to extensive lengths to hide the workers’ activities. They were to communicate in code: “I have a headache” meant they suspected they were being monitored by Cuban authorities; “Your sister is ill” was an order to cut their trip short. 

To evade Cuban authorities, travelers installed innocent-looking content on their laptops to mask sensitive information. They used encrypted memory sticks to hide their files and sent obviously encrypted emails using a system that might have drawn suspicion. 

“These programs are in desperate need of adult supervision,” said Sen. Jeff Flake, an Arizona Republican.

Yes, quite. I will add that there seems to have been the same sort of contractor-capture as in the weird social-media-for-revolution case: Creative Associates International kept sending underpaid agents to Cuba even when the U.S. told them to stop after the Cubans arrested Alan Gross. 

So what have we accomplished? We have given Castro and Putin talking points, put innocent people at risk of arrest, recruited zero Cuban rebels, and discredited USAID health operations. The next time Pakistani militants go on a rampage against vaccinations, it is going to be that much harder to convince people that they are making things up.

Can we fire Rajiv Shah now?

The beginning of the end of Venecuba was in 2007

Venezuela has a special relationship with Cuba. The number of Cuban officials who can be found throughout the Bolivarian government is quite astounding, as is the volume of financial aid that Venezuela grants its Cuban partner. Moisés Naím has a good piece on it at the Financial Times, although it relies too much on a qualitative picture for my taste.

There are two things to note about “Venecuba,” as Hugo Chávez once called the alliance.

The first is that the two countries reached the current level of integration fairly early, around 2008. Evidence? One estimate for 2008 is that transfers to Cuba came to $5.6 billion in payments for Cuban officials working inVenezuela and $2.5 billion in subsidies for oil sold at $27 per barrel. (See page 109.) For 2010, the same source estimated the value of the same two transfers at $5.4 billion for personnel and $2.8 billion for oil. (See also here.) That is not a big change.

Ernesto Hernández-Catás (using a different methodology) gets the same result: not a whole lot of change in net Venezuelan transfers (in billions of current US$) after 2008:

The more qualitative reports of Cuban officials operating inside the Venezuelan state are harder to measure. But it should be noted that the U.S. was worried about Cuban influence in the foreign ministry and the Cuban presence in Venezuelan ports in 2008. Juan José Rabilero, the coordinator of Cuba’s Committees for the Defense of the Revolution, boasted, “We have over 30,000 members of Cuba’s Committees for the Defence of the Revolution in Venezuela” ... in 2007.

In short, the Cuban-Venezuelan relationship reached its peak around 2007-08. That is not to say that the relationship isn’t an astoundingly tight one. It is. It is to say that it hasn’t gotten much tighter since ‘08.

The second thing to note about Venecuba is that there was a lot of talk of deeper union in 2007. The State Department noted this in an internal cable. The political benefits of greater institutionalization were obvious. It would secure Cuba’s access to Venezuelan resources and make it easier for President Chávez to call on Cuban support to help him cement his control over Venezuela. Randy McDonald discussed the idea here.

So what happened? One possibility is that plans to institutionalize the Venecuban links were just hot air. That was true of a lot of Hugo Chávez’s initiatives.

But that isn’t what happened. What happened was that Chávez put the possibility of a federation before the Venezuelan people in 2007 and got beat at the ballot box. Here’s the story. Chávez proposed a series of constitutional amendments to the National Assembly in 2007. In the Assembly, his party added a series of additional amendments. (This almost certainly occured under the supervision of the executive branch.) Among them were reforms to Articles 152 and 153.

The original text of both articles read as follows:

Article 152: The international relations of the Republic serve the ends of the State as a function of the exercise of sovereignty and the interests of the people; they are governed by the principles of independence, equality between States, free self-determination and non-intervention in their internal affairs, the peaceful resolution of international conflicts, cooperation, respect of human rights and solidarity among peoples in the struggle for their liberation and the welfare of humanity. The Republic shall maintain the finest and most resolute defense of these principles and democratic practices in all international organs and institutions.

Article 153: The Republic shall promote and encourage Latin American and Caribbean integration, in the interest of advancing the creation of a community of nations, defending the region’s economic, social, cultural, political and environmental interests. The Republic shall have the power to sign international treaties that implement and coordinate efforts to promote the common development of our nations, and to ensure the welfare of their peoples and the collective security of their inhabitants. To these ends, the Republic may transfer to supranational organizations, through treaties, the exercise of the necessary authorities to carry out these integration processes. In its policies of integration and union with Latin America and the Caribbean, the Republic shall give privileged status to relations with Iberoamerican countries, striving to make this a common policy throughout our Latin America. Provisions adopted within the framework of integration agreements shall be regarded as an integral part of the legal order in force, and shall be applicable directly and with priority over internal legislation.

The new versions would have read:

Article 152: The international relations of the Republic are based on the full exercise of the sovereignty of the Venezuelan state and are governed by the principles of: political independence, equality of States, self-determination and non-intervention in internal affairs, the peaceful resolution of international conflicts, defense and respect of human rights and solidarity among peoples in the fight for their emancipation and the welfare of humanity. The Republic shall develop the finest and most resolute defense of these principles in international organs and institutions, fostering their permanent democratization for the construction of a just and balanced order. The foreign policy of the Republic shall be actively oriented towards the construction of a multipolar world, free from the hegemony of any imperialist, colonialist, or neocolonialist power center. In order to guarantee that this article be carried out, the Foreign Service is declared a strategic activity of the State. Its organization and functioning will be established by law.

 Article 153: The Republic shall promote the integration, Confederation, and Union of Latin America and the Caribbean with the aim of configuring a great regional political, economic, and social power bloc. In order to obtain this objective, the State will favor the construction of new models of integration and union across our continent, to permit the creation of a geopolitical space within which the peoples and governments of our America shall construct a single supranational project, which Simón Bolívar called “A Nation of Republics.” The Republic may sign treaties and international conventions based on the broadest political, social, economic and cultural cooperation, supranational productive complementarity, solidarity, and fair trade.

In practical terms I cannot make heads-or-tails of either article ... but as a statement of principle the reform is clear. The original version committed the Bolivarian Republic to defending motherhood in article 152 and enabled the construction of something like the European Union in Article 153. The new version changed that. Article 152 now committed the country to an effectively anti-American foreign policy. Article 153 declared the aim of uniting as much of Latin America as possible into an anti-American confederation.

At the time the reform of Articles 152 and 153 was seen as part of the Venecuba trial balloon.

Anyway, the Venezuelan electorate narrowly defeated the reform at the polls. These reforms were not the main reason for the loss, of course, but President Chávez decided that he had pushed de jure union with Cuba as far as it could go. He had also pushed the de facto alliance as far as possible. And that was the end of that.

But not of Cuban involvement in Venezuela, for better or for worse. To be perfectly frank, I believe that the Cuban presence is both very large and largely inconsequential.

The underpants business model as applied to democracy promotion in Cuba

For those who missed it, it appears as though USAID recently and clandestinely tried to establish a twitter-like service inside Cuba. Contractor documents reveal a CIA-like plan to start the program up with innocuous postings but later introduce political content in order to organize “smart mobs” and “renegotiate the balance of power between the state and society.”

On the pro side, an admirable goal. The United States has long used USAID to help people self-organize against odious regimes. This happened during the Cold War, of course, and most notably the organization played a significant role in bringing down Slobodan Milosevic in Serbia. But it also helped tip over Vladimir Voronin in Moldova, a role that was not at all secret even at the time.

I can’t blame USAID for wanting to give it a go in Cuba. The agency appears to have crossed the line from discreet into covert distinction, but the line is fuzzy. It is hard to operate openly in closed societies. A close personal friend has seen the torture scars on an Otpor member who was caught organized protests against Milosevic. The Castro brothers are no less oppressive. So even though the secrecy was ultimately counterproductive, I would cut the agency some slack in that respect.

But.

This plan was moronic.

You can sum it up as follows. (1) USAID money, (2) Twitter in Cuba, (3) ????, (4) Democracy!

The goal was unclear beyond “get young Cubans on social media.” There was no way to scale up. There was no exit strategy. USAID employed a sketchy contractor using an even sketchier subcontractor. There was little to no oversight within USAID or the State Department. (We appear to have trusted the contractors to stay quiet, but we did not trust our own internal watchdogs.) In the process, we managed to give away hundreds of thousands of dollars to Cuba’s state telecoms operator.

You might think that USAID would have a strong bench of people who have carried out this sort of operation. But none of them seem to have been involved. My discussions with people connected to American aid work chalk this up to a series of systemic problems with the agency. First, it has a short institutional memory: salaries are low, so the best people tend to leave for the private sector. Often they leave to become contractors with the agency ... but the contractors don’t talk to each other. Second, there is regional stovepiping: the Latin American experts don’t talk to the Eastern European ones, etcetera. Finally, there is a lot of contractor capture, and that clearly happened here: the contractor tail wagged the USAID dog.

One sad possibility is that USAID kept this ridiculous operation alive longer than it should have in order to suck up to Congressperson Ileana Ros-Lehtinen (R-Florida), who chaired House Foreign Affairs in the last Congress. I could sympathize with that if I thought it would actually buy the agency any credit with the Republican house majority. Sadly, I don’t. And not telling Senator Patrick Leahy (D-Vermont) about the operation? That was probably USAID head Rajiv Shah trying to be cunning. Only it was not cunning. It was stupid.

The overall impression is very Amateur Hour.

I am not impressed with Director Shah’s vision of turning USAID into a stepped-up version of the Gates Foundation, where government money leverages private financing for private ventures. Contrary to the New York Times headline, Shah’s vision is not a “switch.” Rather, it’s just more of the same outsourcing, with all the loss of oversight and knowledge transfer that outsourcing involves. I saw the result of that up-close-and-personal in Afghanistan and it was not pretty.

I have to agree with my colleagues in the aid world that Secretary Kerry should ask Obama to wait a decent interval, say six months, and then fire Director Shah. I’m sure that Shah will make a great Congressman. Maybe he’ll even make a great executive someday. But right now he should not be running this nation’s premier aid agency.

You swear the man come from Jamaica, you know

Randy McDonald brought this video to our attention:

 We saw it with a number of Trinidadians and Trini-Americans. The reaction? First: “Who’s that talking? That’s somebody else talking.”

Second: see the title of this post. We are sending it to Jamaicans for review.

What I want to know is: where did he pick that up?

Much ado about nothing: China and the Caribbean

The Inter-American Dialogue just published a new report on Chinese investment in the Caribbean. And what did it find? Nothing!

Seriously, nothing. There is nothing to be seen here. The headline number for the stock of Chinese FDI in 2011 was $469 million. This is not a whole lot, even considering the small size of the Caribbean economy. Moreover, the geographic distribution shows there is even less to this than meets the eye.

Investment in the Bahamas and Barbados totalled $1.6m and $3.1m respectively; this is the equivalent of a couple very nice beach houses. (And significantly down in both places.) In Trinidad, perhaps the Caribbean’s most important economy, and certainly the one with the greatest growth prospects, China has invested a risible $900,000.

In Jamaica, China has more significant investment: $39 million and rising fast. The Jamaican government got out of the sugar business in 2011, selling three sugar factories and leasing 30,000 hectares of cane fields to Complant International. Complant then began a four-year investment program to put about $156 million into improvements in fields and factories, plus a new refinery to process 200,000 tons of raw sugar per annum.

How has that been working out? Not too well. First, it got hit with a drought. Then it got slammed by a fall in the Jamaican dollar. (Jamaica, unlike the rest of the West Indies, floats its currency. See the previous post.) Adding insult to injury, the company purchased $160 million in new plant and equipment ... of which an astounding $28 million was promptly stolen. Complant then fired 132 guards on July 31, 2013 ... only to face a sympathy strike by the rest of the workforce. The strike was resolved, but the Jamaican sugar industry is still in trouble, and the company is now in trouble over a decision to terminate the credit-support facility to its sugar-cane suppliers.

Another big rise has been in St. Vincent, from $6m to $36m between 2003 and 2010. I have not been able to find out what that was about, and I should note here that St. Vincent still recognizes Taipei as the official capital of all China.

Two-thirds of Chinese investment in the Caribbean is in Cuba and Guyana, with the bulk of the rest in Suriname. Cuba is, well, Cuba. The Guyanese investments are in bauxite, where the Bosai Minerals Group purchased 70 percent stake of Omai Bauxite Mining (the remainder staying in the hands of the Guyanese government). The Surinamese investments are in palm oil. Neither in Guyana nor in Surinam have Chinese investments lead to great leaps in output or productivity; Guyana is in a mining boom, but the lead is not Chinese.

There is more debt invesment (for example the giant Baha Mar complex in the Bahamas is on track, although the China Ex-Im Bank never seems to have taken an equity stake) but other than the Bahamian mega-resort none of it is economy-changing.

In other words, China has a presence in the Caribbean, but it is concentrated in a few countries, not particularly successful, and a harbinger of nothing other than the fact that Chinese banks and companies have dollars to burn.

Angela Merkel finds her inner Teddy Roosevelt: Lessons from Santo Domingo

 It appears that the German government has just announced that it wants Greece to renounce its sovereignty in return for more credit. (Well, at least in return for the release of existing credit lines.) The idea isnt new: in 2002, two prominent economists seriously proposed that Argentina give up its sovereignty for five years. Of course, Argentina has done quite well for nine years by breaking all the rules, but it is far from clear that Greece could copy that, or that Argentina will continue to do well.

There is a historic parallel: the U.S. and the Dominican Republic in 1905. (Actually the U.S. and lots of Latin American countries, ranging as far afield as Peru and Bolivia, plus Liberia ... but let’s wait on that.) Short takeaway: Washington was way more generous back in those benighted days, with very little at stake, than Berlin is being today, despite massive repercussions for Germany if things go wrong.

The backstory was about what you might expect. The D.R. had defaulted; its government was facing multiple armed revolts; and the Germans were nosing around. This latter made Washington nervous that a rebel force (or one of the rapidly-changing governments of the day) might transfer a naval base to Germany in return for aid. In fact, after U.S. intelligence captured a letter from General Demetrio Rodríguez openly requesting aid for President Carlos Morales, Captain James Miller “invited” Rodríguez on board his ship, where he explained: “Neither he [Morales] nor anyone must think for a moment that Germany or any other foreign power could be situated in any portion of the Dominican territory.”

President Morales saw an opportunity. If he could convince the United States to take over his country’s customhouses, using the German threat as motivation, then he could kill three birds with one stone. First, having U.S. troops in the ports would remove them as strategic targets for rebel forces. Second, U.S. officials could manage the customhouses far better than corrupt Dominicans, thereby increasing revenue. Third, if the Americans could be convinced to skim a bit off the top and use that to guarantee debt repayments, then the D.R.’s borrowing costs would go down, and Morales could borrow more on top of the increased revenue. Win win win! Who needs sovereignty? (Two out of the three points, one might think, would apply to Greece today.)

Uncharacteristically, President Theodore Roosevelt (in his own words) chose to  “put off the action until the necessity became so clear that even the blindest can see it.” He was a bit worried that American public opinion might not be thrilled with the idea of involvement in somebody else’s civil war, not while the Philippine War had only just ended two year previously, and not with U.S. troops still fighting in Mindanao. So Roosevelt waited, and the Dominican situation got worse, and the Europeans kept nosing around, and American investors kept screaming, and finally in May 1904 the President proclaimed his famous corollary to the Monroe Doctrine. It read:

Any country whose people conduct themselves well can count upon our hearty friendship. If a nation shows that it knows how to act with reasonable efficiency and decency in social and political matters, if it keeps order and pays its obligations, it need fear no interference from the United States. Chronic wrongdoing, or an impotence which results in a general loosening of the ties of civilized society, may in America, as elsewhere, ultimately require intervention by some civilized nation, and in the Western Hemisphere the adherence of the United States to the Monroe Doctrine may force the United States, however reluctantly, in flagrant cases of such wrongdoing or impotence, to the exercise of an international police power.

Thing is, it still took a while to build support, and there was, you know, an election to win. President Roosevelt didn’t agree to Morales’s request until December 1904, a month after the U.S. presidential vote. The Senate, it turns out, had other ideas. Roosevelt decided that with the election past, that wasn’t a problem, and so the U.S. took over the customhours without a treaty on March 31, 1905.

Under the agreement, the U.S. directed 55% of customs revenue towards debt payments, but it did not do so mindlessly or automatically. Rather, it banked the money until February 1907, when it finally forced the D.R.’s creditors to accept a 50% haircut on their outstanding principal. (The average coupon was reduced to 5%.) In fact, if expropriation claims are excluded, creditors accepted a 57% haircut on their debt.

Moreover, the agreement worked: there was no austerity. Even after the U.S. took 55% off the top, government spending did not fall. Moreover, the D.R. managed to go to the capital markets as early as May 1907, when it refinanced its outstanding post-haircut debt of $15.8 million and borrowed an additional $3.9 million. ($3.9 million is, as a share of U.S. GDP, the equivalent of $1.7 billion in 2010.)

And therein lies the rub. Or rubs. First, the D.R. was not a democracy in 1904; Greece is one in 2012. Second, the D.R. asked for the receivership; the Greek government is not. Third, the U.S. used its good offices to obtain a very favorable debt restructuring; the E.U. (meaning the Germans, really) is letting Greece hash things out with its creditors on its own. Finally, in the case of the D.R. the U.S. really was able to improve custom collection; I’m not sure that anyone believes that a foreign administrator will be able to easily improve the Greek internal revenue service inside a culture of widespread evasion.

In other words, the U.S. was much more generous to its dirt-poor neighboring nondemocracy than the Germans are being towards their not-as-poor fellow democracy. Good luck with that. Unless, of course, failure is the plan.

Is Sint-Maarten an independent state?

 The Kingdom of the Netherlands is a strange animal. It isn’t much of an empire. Nor is it a proper federation; it doesn’t even have a federal government per se. International treaties apply differently to the different parts. (See Articles 24-28 of the Charter of the Kingdom.) The Caribbean members have duty-free access to the European Union, but there is no true common market. In theory, Article 35 requires that they pay for their own defense. (In reality, it doesn’t matter: the insular Caribbean outside Cuba is a de facto military protectorate of the United States.) The Supreme Court of the Netherlands is the ultimate court of appeal, but most of the ex-British insular states (save Barbados and Guyana, but including Mauritius an ocean away) still use the Privy Council. It uses a different currency, with its own central bank. Finally, the Caribbean countries can all withdraw fairly easily, using provisions laid down in the Charter. Sint-Maarten could remove Dutch influence far more easily than the Bahamas could get rid of the United States.

So is the Kingdom meaningless? Are the constituent countries simply independent countries without a seat in the U.N.? Well, not quite. First, there is a common citizenship. Immigration and naturalization laws may vary (the latter by rather little), but once you’ve got that Kingdom passport you’re a full citizen. If Great Britain had been willing to extend that to the West Indies Associated States, I doubt that any of them would be sovereign countries today. (To be fair, the WIAS had other issues, not least of which that there was no equivalent of the Charter. British officials treated the association as nothing more than a British administrative inconvenience, which rankled on the islands.)

Second, law enforcement. The relationship is a bit of a mess. This Dutch document goes into it: since I am not a Dutch speaker, and translation software is overvalued, I can’t say that I understand the details. That said, while Dutch police have less authority in Sint-Maarten than, say, the FBI does in Puerto Rico, they do have authority, even if they generally need local approval to make arrests. That is a bit more authority than, say, OPBAT gives American officials in the Bahamas, or than DEA agents have in Colombia or Mexico.

Third ... well, here it gets interesting. The Netherlands provides financial support to the other countries in the Kingdom, but it is phasing it out. Development and fiscal aid is supposed to end by 2013. In fact, transfers have been generally miniscule. According to IMF data, in 2008 aid to Sint Maarten amounted to only 0.3% of GDP.

Recently, however, that has changed. Aid rose to 2.0% of GDP in 2009 and 6.2% in 2010, most of it to pay off Sint-Maarten’s debt arrears. More substantively, the Netherlands took over the debt from the former government of the Netherlands Antilles that otherwise would have gone to Sint-Maarten, a gift worth approximately 30% of the country’s GDP. In return, however, the island has had to accept Dutch financial supervision. The Financial Supervision Authority is supposed to stick around until 2013, by which point Sint-Maarten is supposed to have trained up enough people to take over the functions formally carried out by the government of the Netherlands Antilles. We’ll see.

In short, being part of the Kingdom of the Netherlands is a bit more substantive than simply lacking a U.N. seat. That said, technical sovereignty matters very little. The U.S. routinely took control of the finances of Latin American countries before WW2, and the IMF effectively does so today. (A country can refuse IMF money, of course ... but Sint-Maarten can, in theory, also refuse Dutch support.) Similarly, law enforcement officials from a powerful state can often find ways to exercise their authority inside a weaker one. Finally, lots of nominally sovereign countries share or outsource judicial authorities. What matters, rather, is citizenship and the moral authority to call on Dutch resources when necessary. It is a relatively weak relationship, but a real one nonetheless.

The French side of the island is completely different. If there’s interest, I’ll discuss it later.

A new nation in the Caribbean

 Every Christmas, we go to a different Caribbean island to meet my wife’s family. This year, we went to Sint Maarten, Saint Martin, and St. Vincent. The first two, I should add, share the same island.

Sint Maarten, which makes up the southern half of a tiny Caribbean island in the north of the Lesser Antilles, is a new country in two ways. First, it really is a new country. The Kingdom of the Netherlands is not a small country on the northwestern coast of Europe. Rather, it is a federacy of several different countries, called, well, “countries.” In 1954, when the former empire was turned into a federacy via the Charter, the Kingdom consisted of the Netherlands, Suriname, and the Netherlands Antilles. (Dutch New Guinea was not part of the new structure.) In 1975, Surinam became independent in a disgusting little racist episode engineered by Prime Minister Joop den Uyl. Aruba split from the rest of the Netherlands Antilles in 1986, but remained part of the Kingdom. Finally, last year the Netherlands Antilles dissolved into two more countries, Curaçao and Sint Maarten, while the three remaining territories (Bonaire, Saba, and Saint Eustatius) became part of the Netherlands. Sint Maarten’s status as a country, then, is only a little over a year old.

Sint Maarten is a new country in another sense, however: more than three-quarters of the population consists of the descendents of immigrants who arrived after 1960. The sugar and cotton industries collapsed after the abolition of slavery in 1863. Maartenese laborers went to Cuba, Puerto Rico, and the Dominican Republic to work in the sugar industry. In 1918 a giant oil refinery opened on Curaçao, followed by one in Aruba in 1928, sucking out more labor from Sint Maarten. The result was stagnation: in 1960, the population was only 2,728. The island looked to be sinking into a backwater, an unpopulated remnant.

The jet age (and Fidel Castro) changed all that. The Cuban Revolution removed that island as a destination for North American tourists. Sniffing opportunity, in 1964, the Antillean government relocated and expanded Princess Juliana International Airport.

Tourists began to arrive en masse, the cruise ships followed. And the population grew. And grew. And grew. To only 40,000 people, admittedly, but the entire country covers only 13 square miles. By 1992, only 30% of the population had been born in St. Maarten, and a solid chunk of those were the children of post-1964 immigrants.

It is possible to be naturalized as a Dutch citizen, but it isn’t easy. (Strangely, it seems as though I may qualify for Dutch citizenship without the need to be naturalized, just as I qualified for Spanish citizenship until last Tuesday.) In 2001, citizens made up 51% of the population. 30% of the population was (still) native-born; an additional 10% came from elsewhere in the former Netherlands Antilles and 2% came from the Netherlands proper. The math, then, shows that only 9% of the population consists of naturalized citizens.

Who naturalizes? It isn’t easy to tell, but it is easy to see who doesn’t naturalize: in 2001, people born in the British West Indies made up 20% of the population, whereas citizens of those countries made up 21% — they do not naturalize; neither did a small number of their Sint-Maarten-born children. Even more dramatically, the Haitian-born made up 8% of the population, but Haitian citizens made up 12% — very few of their children naturalize. Finally, Dominican-born made up 12% of the population and while Dominican citizens made up 10%; of the three major groups, they are the most likely to naturalize. (Two-thirds of the foreign born outside those three groups and developed-world expats become Dutch citizens. Most of them are from Cuba, South America, and Lebanon.) The West Indians may be unlikely to receive Dutch citizenship, but they are also next-to-invisible on the Dutch side. The initial plantation owners on that side of the island were from Britain; they brought English. Everyone speaks it fluently, from birth, with a faint West Indian inflection. 

The Dominicans, on the other hand, are pretty distinctive. Our first contact with them actually came on the French side of the island. We were walking along Orient Bay in the evening, and heard tropical music coming from one of the beach clubs, all the way at the southern end of the beach. It was a live band, and an awesome live band. Everyone in there except for us (including the waitress) was Dominican. (There are no border controls.) It was awesome ... and by day an utterly nondescript beach bar populated by tourists.

On the Dutch side, you can see money-sending places, Spanish service shops, and evangelical iglesias scattered around the poorer outskirts of Philipsburg. The Dominicans are visible. The migration is skewed towards women: 61%. According to the Sint Maarten government, most of the initial migration came in illegally from Romana and San Pedro de Macoris. The migrants provided fake work sponsors to Sint Maarten’s then-lackadaisical immigration officials. It’s also skewed towards the unskilled: Dominicans make up 29% of all unskilled workers, with Haitians filling an additional 30%.

The Haitian migration is almost the mirror image of the Dominican one in terms of gender: it’s 59% male. It’s also the mirror image in terms of visibility. The only easily-spotted presence is the fishermen near the airport, and the stalls where they sell their products.

Policy, as you can imagine, has been confused, although it is getting better. Before August 1, 1996, education was neither free nor compulsory for immigrant children. The legal school population doubled in 1990-95, and so educating immigrants was not particularly popular, especially since many of the Haitians were refugees fleeing the chaos of the early 1990s and living in tent cities.  Nonetheless, the government came around to the idea that creating a large uneducated underclass was a bad idea, and so compulsory education was extended to all. State health insurance, however, is not available for undocumented immigrants, who often cross over the French border to receive emergency care. 

Thoughts?

Bahamian wages, the limits of small-country Keynesianism, and the Chinese not-empire really is not (yet) an empire

 The Bahamas are not rich by the standards of the United States and Canada. But they are not poor by the standards of the world. There is no desperate poverty, and there are few people cut out of the modern economy altogether. Rather, the country feels like a relatively poor part of the United States. The poor areas are poor, but they are no worse than what you can see all over Florida.

The country’s minimum wage is $4.00 an hour. That’s low by American standards, but high by regional ones: Trinidad’s average wage is only a little higher than the Bahamian legal minimum. “Kitchen helpers” in the hotel industry, one of the lowest-paid categories, average $6.16 per hour. Shop sales assistants make $7.37 an hour. Gas station attendants make $8.00; cashiers $8.40, and housekeepers $10.53. The average hourly wage for all production workers was $13.00, and the average work week was 38 hours. These wages are not low. In fact, average nominal wages in the Bahamas ($13.00) are on a par with Mississippi ($12.83), Puerto Rico ($12.92), and West Virginia ($13.19).

The Great Recession has badly wounded the Bahamian economy, but no worse than several parts of the United States.  Bahamian unemployment remains high at 13.7%. That said, unemployment in Minnesota (14.1%), Nevada (13.7%) and Puerto Rico (16.3%) exceeds the Bahamian level, while the other low-wage jurisdictions in the United States don’t show low unemployment: Mississippi with 11.1% and West Virginia with 9.0%.

What is the Free National Movement (FNM) government doing about the economy? Monetary policy, of course, is mostly out of their hands. Capital controls mean that the government also has some room to use monetary policy — it recently slashed the discount rate from 5.25% to 4.50% — but the peg to the dollar limits its freedom of action. The government has some scope for a Keynesian boost — the budget deficit is only 3.0% of GDP, and they recently sold the Bahamian Telecommunications Company for $210 million — but it is unlikely to be effective. Why? Simply put, the Bahamas is too small and too open. Imports come to 35% of GDP. Much of any stimulus, therefore, is likely to “leak” away in increased imports.

What’s left, then, besides praying for the United States to get out of the doldrums? Well, Prime Minister Hubert Ingraham has decided to try attracting as much Chinese investment as possible. The Chinese government has taken a $2.75 billion equity stake in the giant Baha Mar resort development. It also provided loans to finance stadium and road construction.

The problem? Well, the economic problem is the same as with Keynesian spending: leakage. The Bahamas is a pretty small economy. It doesn’t produce a whole lot of construction material, and while unemployment is high, it doesn’t have that many skilled construction workers. The Baha Mar construction project will bring in 6,150 Chinese construction workers, while the $70 million new airport road has involved another 200. Not all the construction labor force will be Chinese, of course, but construction is estimated to employ only 4,000 Bahamians. The developers have pledged only $200 million in contracts to Bahamian firms although that might ultimately rise higher.

The China State Construction Engineering Corporation (CSCEC) will get $1.9 billion, or 53% of the total value of the project. Some of that may stay in the Bahamas, of course, but probably not a whole lot: Chinese workers are estimated to remit roughly $12,000 per year. They do, of course, eat and drink — but the Bahamas is a large agricultural importer, and so those expenditures will like benefit American agriculturalists. The government estimates about $80 million or so in tax payments from the CSCEC but that isn’t a lot. The highest estimate is that Bahamian contractors will receive no more than $400 million, or 11% of the total project value — and they will, of course, spend a large chunk of that revenue on imported inputs. In short, at least half the stimulus will leak away and possibly as much as 90%.

The Nassau Guardian summed it up: “"The Bahamas has fallen fully into the embrace of China. And the rising empire has been kind with its gifts … What Bahamians must understand is that when China lends, and it contracts its own workers to do the job, a significant amount of the money borrowed goes back to China with the workers who build the project. They pay their workers with money we borrow … The Chinese also keep their workers in self-contained on-site camps when they are sent abroad. We barely get them to visit our stores to spend the money we borrowed when they are working in our countries.”

This is not to say that the project is a bad deal! Once it’s done, it will provide a solid boost to the Bahamian economy. Even if the U.S. economy stays flat, it should be able to attract business away from other Caribbean resorts. It is to say that a tiny country like the Bahamas can’t really do a whole lot to use countercyclical fiscal policy to boost its economy, regardless of whether the stimulus comes from government borrowing or foreign investment.

The U.S. government worried that China might be “using this investment solely to establish a relationship of patronage with a U.S. trading partner less than 190 miles from the United States.” I don’t see it. Sure, the Chinese government will have a big stake in a giant resort development. If there was some evidence that China had used its state power to unfairly obtain contracts from American firms, then there might be cause for concern, but there isn’t. Nor is there evidence that China bribed or otherwise influenced Bahamian officials.

As for Chinese “patronage,” well, patronage in exchange for what? The U.S. already controls large spheres of Bahamian public policy. The Chinese government isn’t about to force the Bahamas to suspend OPBAT, expel the Coast Guard, sever the link to the dollar, seize American property, restrict American imports, replace the Privy Council with a Chinese court, or station nuclear weapons off the coast of Florida. Given the overwhelming dominance of the United States, and its long-standing and multiple links with the Bahamas, I can’t for the life of me figure out what a “patronage relationship” with Beijing would even mean. In point of fact, “Senior GCOB officials privately expressed that China is not their preferred partner and acknowledge that negotiations are difficult.” Moreover, the Chinese government told the Americans that they were unhappy about the need to take the financial lead on the project: “Chinese embassy officials privately told [a U.S. official] the China Ex-Im bank would prefer another investor in the mix to diminish the financial risk.” E.g., Americans just weren’t interested. So much for the rising empire muscling out the declining one.

The only realistic worry I can see is that the Bahamas might serve a pathway for illegal Chinese immigration, a fear shared by the U.S. Embassy in Nassau:  “The continuous arrival of thousands of low-wage Chinese workers in the Bahamas will likely lead to a significant increase in illegal migration of Chinese from the Bahamas to the United States. The GCOB (Government of the Commonwealth of the Bahamas) does not have the institutional capacity to effectively monitor the movements of the Chinese workers nor effectively detect inauthentic travel documents.” But still, that is minor ... and that worry involves the fact that China is still a poor country unable to retain its own people when given opportunities elsewhere.

In short: the Bahamas is rich, small countries have serious economic limitations, and China is still both poor and very far away. Okay, not the deepest conclusions ever, but hey. I am on vacation. And really, any opportunity to reduce the latent China-hysteria in the United States is probably worth taking.

Murder in the Bahamas

 Crime in the Caribbean has risen dramatically in the past decade. The Bahamas is no exception — but there are two major differences between the archipelago and the most of the rest of the West Indies: first, the Bahamas has been there before; and second, the Bahamas has well-functioning police institutions. In that sense, there is much room for optimism (assuming that the world economy holds up) to predict a significant fall in violence in the near future — if certain fairly simple reforms are undertaken.

We’ll start with the history. From the late 1960s through the mid-1980s, the murder rate (measured per 100,000 people) steadily spiraled upwards as the islands became a center for drug trafficking into South Florida. (The data come from U.N. crime surveys and the Royal Bahamian Police Force, abbreviated RBPF.) Unfortunately, uniform data is not available for 1987 through 1990 (the Bahamas did not take part in the U.N. survey for those years) but the time series agrees with the general impression of that era: once the United States took an active role in suppressing the drug traffic through the archipelago, violent crime fell rapidly. It did not, however, fall all the way back to pre-1970 levels: most accounts pin the continuing level of background violence on the establishment of youth gangs on the islands and the arrival of large numbers of Haitian immigrants.

In the last decade (after a brief spike in 1999-2000) homicide has climbed back up to near its historic high. The reason for the climb is not undocumented immigration from Haiti and Jamaica: between 2005 and 2009, only 12% of homicide victims were Haitian-origin, with another 1% from Jamaica. That is not far off historic norms, and certainly not enough to explain the rise.

Rather, like elsewhere, the cause is probably drug-related, albeit this time for control of local markets, rather than export to the United States. Between 2007 and 2009, the percentage of drug-related killings jumped from 8% to 16%. Put another way, the increase in drug killing accounted for all of the post-2007 increases in homicide. Unfortunately, drug-related crime accounts for precisely none of the 2004-07 jump. (Actually, drug-related killing fell from 9 per year to 6 over that period; their contribution was actually negative.)

The Bahamian police, however, use a very exacting definition of drug-related. There is, however, a looser classification for what are called “retaliation” homicides: “Killing in response or reaction to prior confrontations, altercations, crimes or other issues.” Between 2005 and 2007, retaliation killings rose from 2% to 18% of all homicides, and accounted for 65% of the rise in murders. They since stabilized, but as noted before, murders carried out at the site of drug transactions continued to increase. Since the majority (it isn’t clear how many) of retaliation killings are in fact related to previous narcotics-related crimes, it seems likely that increasing conflict for retail drug sales explains most of the Bahamas’ crime spike.

This pattern provides grounds for optimism. First and foremost, the Bahamas is not a particularly corrupt country. Oh, rumors and complaints abound, but there is little evidence of serious rot. The Wikileaks cables, for example, amply criticized Bahamian officials and they had a field day with the scandals surrounding Anna Nicole Smith, which included a torrid affair with the immigration minister who expedited her residence permit ... but the State Department made no mention of serious corruption impacting American business or security interests. And the scandals that have been mentioned, whether by State Department or the Bahamian press, are pretty small potatoes by American standards ... let alone compared to standard operating procedure in, say, the Mexican prison system.

More systematically, the classifications used by the IMF rank the Bahamas fairly high in terms of control of corruption. The Bahamas’ rating of 1.4 on a scale from −2.5 to +2.5 ranks it with places like Belgium and Chile and far above Jamaica and Trinidad, both of which have negative scores. In short, Bahamian institutions work, and that is a necessary but not sufficient condition for controlling violent crime.

Reports by the Bahamian police make it fairly clear that the criminal justice system suffers from three shortcomings. First, the RBPF is undermanned — a situation made worse by its reluctance to adopt the common American tactic of flooding “hotspots” with police officers when violent crime spikes. Here is a quote from a high-ranking Bahamian police officer: “For policing purposes, the identification of an ellipse defining a hot spot is, alone, useless. The question then becomes: what does a police officer do after finding him or herself in the middle of a designated hotspot. Experts stress that as long as nobody knows what is heating the hotspot, responses may be futile.”

This reluctance to simply flood “hotspots” with officers sounds commonsensical, but it flies in the face of the evidence from American cities that stamping out violence in one area in does not displace it to others: if the opportunity is lost, most killings simply don’t happen. Such tactics would be particularly effective in the Bahamas, where 23% of homicides occur between pedestrians out on the street, and an additional 21% take place inside commercial establishments. Of course, the RBPF might need more officers (it currently numbers about 3,000, which is not small for a country of 330,000) — but the Bahamas is not poor, and it is ridiculously undertaxed.

The second issue is twofold. First, the RBPF is great (on paper) at solving murders, but extremely lousy at managing to convict those it accuses. Its clear-up rate is 73%, which is higher than the 62% rate in the United States, albeit lower than the 78% rate in Barbados, the 82% rate in the U.K. and the 86% rate in Australia. It certainly beats the hell out of the 32% clear-up rate in Jamaica and the 18% rate in Trinidad.

The problem is that murder arrests in the U.S., U.K., Barbados, and Oz overwhelmingly result in conviction, whereas in the Bahamas they do not. Of the 231 homicide charges filed in 2005-09, only 63 had gone to trial by the end of 2009. Worse yet, of those 63, only 18 resulted in conviction. The former is a sign that the court system is overwhelmed, and needs more judges and bailiffs and jails and money. The latter is a sign that the Bahamian police are pretty bad at following through on the second part of a good Law & Order episode, and casts doubt on the veracity of that much-touted clear-up rate.

Still, the Bahamas doesn’t need to massively increase the rate at which it arrests and convict murderers to reduce its incidence, although that would help. They simply need to disrupt open criminal activity (which is highly clustered) and detain people for other crimes. The Bahamas is not at all like Trinidad or Mexico; it’s much more like a high-crime area of the United States. If its voters don’t like the level of criminal activity on the islands, then the solution is pretty straightforward — all it will take is money.

Is the Commonwealth of the Bahamas an independent state?

 Is the Commonwealth of the Bahamas a sovereign nation? It has a seat in the United Nations, so it a technical legal sense the answer is clearly yes. And it has a very cool flag.

But in any other sense of the world, the Bahamas isn’t sovereign. Like many (perhaps most) microstates, the Bahamas has only managed to survive by a combination of outsourcing some state functions to bigger more powerful countries and giving control to powerful neighbors when their interests are at stake. 

Let’s start with the obvious: the Bahamas is fully dollarized. Technically there is a separate Bahamian dollar, maintained at parity with U.S. money — in reality the U.S. dollar circulates to the point where you have to go out of your way to receive Bahamian banknotes. Unlike Argentina during the days of the currency board, nobody bothers to hoard dead presidents. Still, the Bahamas hasn’t completely outsourced monetary policy to the United States: under the Exchange Control Act of 1956, the Central Bank retains the right to restrict foreign exchange dealings. In practice, this has worked as a tax on capital outflows, although there are also some restrictions on current transactions. Still, it’s telling that the act enabling the controls predates official sovereignty by 17 years — and yes, it applied to Great Britain as well.

Moreover, monetary policy is a poor test of sovereignty, even ignoring Bahamian capital controls. After all, many sovereign states outsource monetary policy. Zimbabwe is about as sovereign a country as you are likely to find, and even it adopted the U.S. dollar in the wake of a ruinous hyperinflation. So let’s turn to something more fundamental: law enforcement. Sovereign countries do not allow foreign courts to make decisions or foreign law enforcement agencies to make arrests. The United States, for example, is perfectly willing to help out the RCMP, and the links between the RCMP and the FBI are so profound that the agencies can be indistinguishable — but the Mounties don’t fly helicopters over Montana, and FBI agents don’t make arrests in Ontario. And while American and Canadian courts respect each other’s decisions, you can’t appeal an adverse outcome in Newfoundland to a court in Washington, D.C.

This is not true in the Bahamas, although, confusingly, the foreign power with judicial power and the foreign power with police power happen to be different. The Bahamas’ supreme court is the Judicial Committee of the Privy Council in London. In 2006, 2007, and 2009 the Privy Council held its sessions in the Bahamas — the only country to have that privilege outside the U.K. itself — but at the end of the day, it’s still a British court.  It creates some controversy, particularly over death penalty cases. Nonehteless, the Bahamas shows no sign of wanting to cut its links to it.

Meanwhile, with some caveats, U.S. law enforcement operates in the Bahamas almost as freely as it does in Florida. In the late Seventies and early Eighties, drug traffic through the islands into Greater Miami steadily escalated, and the Reagan Administration put more and more pressure on the Bahamas to do something about it. In November 1983, the Pindling government gave into the pressure and convened a commission of inquiry “To inquire into the illegal use of the Bahamas for the transshipment of dangerous drugs intended for the United States of America.” The commission was made up two Bahamians, an Australian, and a Canadian, and after 146 days it uncovered what everyone knew: the Colombians moved narcotics with impunity through the islands.

And I mean impunity. Aircraft from Colombia would land in Bimini or drop cargo to waiting boatmen, who would put them in speedboats for the 50-mile into Broward and Palm Beach counties. The chief local distributor on Bimini received $90,000 for each run, with local schoolchildren received $500 for a night’s work. A December 1979 raid by the Royal Bahamian Police ended with rocks being thrown at the cops “by children, adults and elderly.” It also uncovered corruption, which had not yet escalated to the upper channels of Bahamian law enforcement … but was clearly getting there.

The result was OPBAT: Operation Bahamas and Turks and Caicos. It started in 1984, but in 1987 the Bahamian government granted the U.S. Coast Guard the right to stop any and all ships and aircraft entering or leaving Bahamian territory. The USCG couldn’t officially make arrests without a Bahamian sign-off, but that was a distinction without a difference. In 2004, the Comprehensive Maritime Agreement between the U.S. and the GCOB (Government of the Commonwealth of the Bahamas) replaced the grab-bag of unofficial conventions and understanding, but had the effect of strengthening the U.S. position in the islands: now the Royal Bahamian Defence Force would regularly station “ship-riders” on U.S. vessels and helicopters, giving the full rights of arrest in Bahamian waters. This authority has proven useful not only in combatting the drug traffic, but also in preventing Haitian migration to either the Bahamas or the U.S. Of course, stopping emigration is not good for Haiti — and OPBAT’s success in curbing the Caribbean drug trade has been awful for Mexico. (I’m heading to Monterrey on Wednesday.) But it has prevented any chance that the Bahamas might become a narco-state.

(You can read Wikileaks’ rather anticlimactic revelations about Bahamian thoughts regarding Haiti and the CMA here. In 2007, the U.S. Army pulled out of OPBAT, and its helicopters were replaced by DEA aircraft, a distinction without a difference. All that happened were that Army UH-60s were replaced at Georgetown by three DEA Bell 212s and a fixed wing aircraft.)

To recap: Bahamian monetary policy is set by the Fed, the supreme court is in Britain, and American law enforcement freely operates in its national territory. Does that make for a sovereign country?  I report, you decide ... but if you pushed me, I would have to say not.

Fear of a black Canada

 Trinidad almost became an American territory in 1931. It didn’t because the British government was perfectly willing to default on its debts to the U.S. government. The Hoover Administration, sensibly, didn’t push the issue.

The Bahamas, it turns out, almost became a Canadian province in 1911. The colonial assembly in Nassau, backed by prominent Canadian investors in the islands, pushed hard to join. The population of the islands was only 56,000, but there was plenty of money to be made investing in infrastructure: the first telephones were only installed in 1906, and electricity arrived in the archipelago in 1909. The Royal Bank of Canada set up shop in 1908.

Canada’s share of Bahamian imports, however, remained small: $28,392 in 1911, compared to $1.3 million in American imports to the archipelago. Moreover, the fiscal cost of taking over the islands would have been minimal: the federal government spent only 6.1% of GDP in 1911, and transfers to provincial governments amounted to only 0.4% of GDP. (Federal infrastructure spending in the Bahamas would have contributed to economic growth in the islands and likely been a wash for the treasury. It also would have been negligible on the scale of the Confederation.)

So why didn’t it happen? Simply put, Canadian racism ... triggered by a wave of American political refugees. Prime Minister Wilfred Laurier (a Liberal) seemed open to the idea of letting the Bahamas join until, in 1911, a strange wave of racial fear arose from Manitoba. A group of about 1,000 wealthy black Americans from Oklahoma — fleeing the 1907 passage of Jim Crow laws after statehood — arrived at the Emerson border crossing. The result was panic on the prairies.

I’ll turn the floor over to William Thoburn, a Conservative MP from Ontario: “As long as we give the free homesteads in Canada’s northwest, they will come by the tens of thousands. I would like to ask the government if they think it is in the interests of Canada that we should have Negro colonization in the Canadian northwest. Would it not be preferable to preserve for Canada the land they propose to give to Negroes?”

The hysteria soon spread to Alberta. A group of prominent Albertans wrote to the federal interior minister, Frank Oliver, with a series of complaints straight out of an American inner suburb, circa 1970. First, they worried that “Negro immigration” would create white flight and drive down property values. (The idea of rural white flight on the Albertan prairies boggles the mind.) They then went on to worry about their women. “We do not wish that the fair fame of Western Canada should be sullied with the shadow of Lynch Law but we have no guarantee that our women will be safer in their scattered homesteads than other white women in other countries with a Negro population.” To his credit, Premier Arthur Sifton refused to block black immigration.

The panic was especially crazy because Canadian law required immigrants to have on them at least $50 per man, woman, and child. In 2010 dollars, that’s $1,185 — but that figure doesn’t take into account the fact that people were poorer a century ago. When adjusted for increases in average wages, each immigrant was required to have the 2010 equivalent of $7,425. In other words, these were not the huddled masses; these were well-heeled political refugees fleeing the sudden imposition of racial tyranny in their home state.

From the Toronto Mail and Empire of April 27, 1911: “If Negroes and white people cannot live in accord in the South, they cannot live in accord in the north. Our western population is being largely settled by white people from the United States. If we freely admit black people from that country, we should have race troubles that are a blot on the civilization of our neighbours ... The Negro question is of the United States’ own making and Canada cannot allow any part of her territory to be used as a relief colony on that account.”

The Canadian government ordered their agent in Kansas City “to refuse certificates or any encouragement to migration of this class” and “take immediate measures to check this class of immigrants.” It then limited black immigrants to Emerson and North Portal, where it subjected them to degrading medical examinations. It went so far as to hire a black doctor from Chicago to travel to Oklahoma and give lectures about how terrible the Canadian climate was for black people. Finally, in August 1911, with a federal election coming up fast, came this order-in-Council, pursuant to the Immigration Act of 1910, which allowed the government to ban “immigrants belonging to any race deemed unsuited to the climate or requirements of Canada”:

In this atmosphere — with the Liberals under fire for their support of the Reciprocity Treaty with the United States — it should come as no surprise that Prime Minister Wilfred Laurier (a Liberal) would decide against expanding Confederation to the Bahamas on grounds of, in his own words, incompatible “ethnical origin.” Laurier was willing to take West Indian islands as purely colonial concerns, with no representation in Ottawa and no right of immigration, but that wasn’t acceptable to West Indian elites which already enjoyed a modicum of self-government. The Bahamas, for example, possessed a parliament elected by a property-restricted suffrage. (The restrictions meant that white people held 26 out of the 29 parliamentary seats, even though they made up only a quarter of the population.)

When Laurier lost the September 1911 election to Robert Borden, the Bahamians tried once again. The big issue in the election was a proposed tariff-reducing Reciprocity Treaty with the United States. The Conservative Party opposed the agreement, and it used imperial rhetoric as part of its appeal. With pro-Empire Borden as Prime Minister, the (unelected) Governor of the Bahamas, William Grey-Wilson, travelled to Toronto. Among other things, he gave a speech before the Empire Club. In it, Grey-Wilson extolled the wonders of trade and tourism — which were, in fact, the biggest gain from Confederation. The Bahamas would win a secure market for its tropical products, and Canadian companies would gain control of that trade. (They would also cement their domination of Bahamian finance and services.) Grey-Wilson, of course, felt the need to assure Canadians that the absorption of the Bahamas would not lead to black members of parliament sitting in Ottawa:

Now, the constitution of the Bahamas, like the other three B’s of that portion of the Empire, is on a suffrage that is almost equivalent to yours in Canada. I have examined them. Separately and I think they are very much the same. That is to say, any member of a community who is in possession of a house of the value of $10 a year is entitled to vote. That, of course, is practically manhood suffrage. That vote is common to the blacks and to the whites. The inhabitants of the Bahamas are one quarter white and three quarters black.

The result of our elections has been for many years past — and I would remind you that the Bahamas have a constitution almost as old as Newfoundland — that the black man almost invariably elects a white man to represent him. And why is that, gentlemen? You here are conversant with the horrors of the situation in the Southern States of America. In the Bahamas we have no such position. (Applause.) I say that a white woman in the Bahamas, in the most isolated position, is as secure today as if she were in this room now. (Applause.) I defy anyone to say that about the Southern States of America.

Now, gentlemen, why is that? It is not because we have treated the black man as the equal of the white; no. He admits himself — the most intelligent of them with whom I have spoken — he admits himself that he is the white man’s inferior. He admits that he is of a child race, undeveloped; but it is because, being a child race, we have extended to him, as we have to all the other races of the Empire, that universal unswerving British justice.

Unfortunately, Governor Grey’s arguments failed to assuage Prime Minister Borden. In a meeting between Grey and Borden on October 18th, 1911, the Prime Minister rejected the possibility of taking the Bahamas into the Canadian confederation. His reasoning was that the events of the past year had proved that Canadian public opinion would not countenance the admission of a majority-black province, no matter how small or how far away. (The refusal of Toronto hotels to give rooms to black Bahamian visitors only reinforced his point.) The Colonial Office concurred. Worried by the hysteria engendered by the emigrants from Oklahoma, the C.O. reported the following about the possibility of a Bahamian province: “No doubt for the moment the Dominion government would safeguard their interests, but there are signs of the rise of a colour question in Canada and in any case it cannot be long before U.S. opinion gives the tone to Canada in regard the Negro.”

Ultimately, all that came out of the talks was a reciprocity treaty with several West Indian jurisdictions. Reciprocity entailed a 20% tariff cut; it was far from the free trade entailed in political union. It barely dented American domination of Bahamian commerce. And so, much as racism derailed an 1867 attempt by the United States to annex the Dominican Republic, racism derailed what should have been a simple, easy, and mutually-beneficial extension of the Canadian confederation into the Caribbean. Canada eventually absorbed poorer, less strategic, and more troubled Newfoundland, but those islanders had pale skins.

As for the Bahamas, it became part of the United States ... okay, not officially, but watch this space.

The Cuban missile crisis

 I am reading The Icarus Syndrome, by Peter Beinart. It’s a good book. Unfortunately, it gives a misleading impression of the strategic situation during the Cuban missile crisis. Moreover, the misleading impression is unnecessary for Beinart’s overall argument.

The Icarus Syndrome is about hubris and American foreign policy. Beinart argues that hubris (from different sources at different times) caused foreign policy overreach, first in World War 1, then in Vietnam, and then in Iraq. In the case of the Cuban missile crisis, he wants to fit it into a seamless narrative connecting Cold War “toughness” with the debacle in Indochina. Therefore, Beinart wants to imply that the Cuban confrontation of October 1961 was about toughness and signalling, rather than actual concrete strategic threats.

On page 155, Beinart writes:

At first Kennedy was not sure why the Cuban missiles posed such a grave threat. (“What difference does it make?” he mused. “They’ve got enough to blow us up now anyway.”) But when he met with his advisers, a consensus quickly formed that the missile were intolerable. Whether or not the actually threatened America, Kennedy later explained, they “would have appeared to, and appearances contribute to reality.”

This description gives a misleading view of President Kennedy’s actual thinking. The first quote comes from page 72 of James Hershberg’s piece on the Cuban missile crisis in the Cambridge History of the Cold War. The quote is from a months before the U.S. detected Soviet missiles in Cuba, and appears to have been an offhand comment taken from a tape recording. As I will explain in a moment, Soviet missiles in Cuba did in fact give the USSR an offensive capability that it otherwise lacked, something that JFK knew quite well.

The second quote comes from pp. 174-75 of Melvyn Leffler’s For the Soul of Mankind: the United States, the Soviet Union, and the Cold War, and Leffler’s paragraph is worth quoting in full:

Kennedy acknowledged that Khrushchev did not want to use the missiles in Cuba to attack the United States. But their presence in the Caribbean “would have politically changed the [world] balance of power. It would have appeared to, and appearances contribute to reality.” The Soviet leader had demonstrated again that he could not be trusted. Through guile and through daring, the Soviets ceaselessy sought to create “a monolithic communist world.”

In context (and Leffler is a very good historian) is clear that Kennedy’s comment referred to Soviet intentions, whereas Beinart makes it seem that it applied to Soviet capabilities. To analogize, Leffler recounts the fact that Kennedy stated that Khrushchev had loaded a gun and pointed it at the U.S., although he knew full that Khrushchev had no intention of pulling the trigger. Beinart, however, gives the impression that Kennedy was saying that the gun wasn’t loaded. (More accurately, he gives the impression that the Soviet leader was merely pointing a handgun at the U.S., when he already carried an assault rifle.)

In 1962, the Soviet Union possessed very little ability to threaten the continental United States with nuclear weapons. Let me repeat that. This is not something that was publicly known at the time, but it was something that was known by the President of the United States. In 1961, President Kennedy received a report indicating that the USSR possessed only four ICBMs, all at a test site in Plesetsk. In November 1961, the President received a dissenting CIA report that included the following table:

In other words, even the dissenters believed that the Russians likely had only 10 (or 25 on the outside) missiles, all of which were vulnerable to U.S. attack. We now know from Soviet sources that the low estimate was spot-on: the Strategic Rocket Forces had only 10 operational intercontinental ballistic missiles at the beginning of 1962, whose reliability the commanders did not trust. Soviet missiles at the time relied on radio guidance, which in turn depended on installations that were not likely to survive a war, given the American ability to quickly detect Soviet launches. 

As for bombers, here is Anthony Cordesman: “Soviet long range bomber forces consisted only of 100 Tu-Bears and 35 May Bison, whose range and flight characteristics forced them to fly at medium and high altitudes, and which made them extremely vulnerable to U.S. fighters and surface-to-air missiles.” What Cordesman doesn’t mention is that U.S. surface-to-air missiles at the time were armed with nuclear warheads, which made them extremely effective at destroying incoming aircraft.

In short, placing Soviet nuclear missiles in Cuba substantially changed the strategic balance. Moreover, in hanging tough, President Kennedy took less of a risk with American lives than is commonly perceived. The missiles in Cuba held the possibility of devastating wide swathes of the southeastern United States (and Western Europe would have been destroyed) but the sort of civilization-destroying attack that was very real by 1973 was not on the table in 1962. Of course, the logic also applies in the converse: by refusing calls to attack the missile sites in Cuba, the President was showing much greater restraint than he is commonly credited.

It is true, of course, that the Soviet buildup was so quick that within a decade any missiles in Cuba truly would have been superfluous. Moreover, as indicated, Kennedy did not believe that Moscow intended a first strike. (The fact that Moscow could not have pulled one off explains the President’s certainty, of course.) Restraint was of course an option. The point, however, is that there were solid strategic reasons to resist the placement of nuclear missiles in Cuba. It was not just about signalling and toughness and (by implication) pointless machismo. 

None of this alters Beinart’s overall point. He makes an excellent argument about hubris, the cult of toughness, and the descent into Vietnam. The problem is that he wanted to make the Cuban confrontation a seamless part of that narrative, but it just doesn’t easily fit.

Seven months later

 Once again, we here at TPTM are ahead of the curve. No sooner does Suresh take us into the mess that is the Haitian refugee camps than the Boston Globe publishes its own report, which corroborates what you heard here. Two latrines for thousands of people. Water shortages. Only 4% of all debris cleared.

Depressing stuff.

Summer Relief Camp

 I just came back from a tent camp in Petionville. 5000 people, maybe 10 latrines and 8 showers. Talk about a stateless zone! But still nobody with guns. In fact the only people I’ve seen with guns are the in front of posh restaurants, behind gates of posh houses, or our posh hotel. Bowles and Jayadev to the extreme.

Here’s what my brief conversations went like:

So do the NGOs ever come by here?

No.

Who provides security?

After the earthquake, it was the police, but now nobody. We organize our own nighttime patrols.

Who provides sanitation?

MSF and PAM arrange for the latrines to be cleaned more or less once a day, but sometimes it doesn’t happen for weeks and the worms get so bad that they are unusable.

The interviewees also told me that PAM collects garbage sporadically from a big dumpster at the corner of the tent city. (Below is a picture of an empty water cistern.)

The strange thing is that PAM is the French acronym for the U.N. World Food Programme. I’m totally baffled as to why the World Food Programme would be taking out the trash, so I likely misunderstood something.

Who provides health care?

Nobody.

MSF stands for Medicins Sans Frontiers, aka “Doctors Without Borders.” They have an excellent reputation, but it doesn’t quite seem to be the best use of resources for them to be sporadically cleaning latrines but not, you know, providing health care. It’s also puzzling as to why latrine-cleaning is handled by an NGO, instead of being organized by the camp directors. I didn’t get to meet the president of the camp, but I’m told that the main source of income is remittances from abroad. Some entrepreneurs convert the remittances to inventory and run small retail stores in the camp.  
 
Next is the thing that touched my primal sense of outrage: Red Cross and U.N. trucks parked right outside the tent city, but facing ... wait for it ... the trendy upscale restaurant across the street, where their personnel are all having lunch. 

I’m sure if I met them I’d find them to be lovely people, but really. What are they thinking?

Accounting for the NGO cash

 What do NGOs do? What are NGOs?

It’s a good question. According to the World Bank’s Operational Directive 14.70, “NGOs include a wide variety of groups and institutions that are entirely or largely independent of government, and characterized primarily by humanitarian or cooperative, rather than commercial, objectives” in poor countries.

But that’s still a pretty broad tent. And it begs the question of why they exist. Not why the totally private NGOs exist — that’s fairly obvious. No, the non-obvious question is why governments channel so much of their aid to poor countries through NGOs. Two billion dollars in government aid goes through these organizations. Werker and Ahmed provide a pretty good overview of what NGOs do, but (at their own admission) not a lot of evidence about how well they do it, and there is a little too much implicit market triumphalism in their account. There is much to be said for the NGOs’ ability to combine public and private assistance, but they do so at the expense of accountability.

In Haiti, there are millions of dollars floating around Port-au-Prince, collected by NGOs in the name of the Haitian people. My tour guide at one of the tent-camps is the founder (and sole force behind) Haiti Aid Watchdog.  My host, if he can get the money to do it, wants to basically audit the NGOs. (Yes, there is an irony in having an NGO audit the NGOs.)

The problems he faces get my blood up. First, NGOs neither open their books nor make available online reports on their expenditures. They were all supposed to prepare such reports 60 days after the earthquake; none did. Second, the NGO headquarters totally ignore him, because he is just a Haitian citizen without political clout. He shows up at an NGO headquarters in Port-au-Prince and they ask “where is your mandate?”. He’s a Haitian citizen. THAT’S HIS MANDATE. But because of the imbalance in power, respect, and resources, he can’t get any of the big NGOs (e.g. World Vision) to release information. Finally, he can’t get any funding, despite the tremendous amounts of cash swishing around the country.

It’s a problem with the non-governmental “governance” that supplements (or even replaces) the state in so much of the world. Any ideas?

Violence, race, and idle research Ideas

 Port-au-Prince isn’t a war zone, the way it is often represented. There’s a lot of rubble and houses sheltered by USAID/U.N./Canadian tarps, but the image of armed gangs running amuck is overstated. I have seen zero guns so far ... which is infinitely less than Noel spotted in rich northern Mexico last month. The image of Haiti as chaotic and violent (which I’ll admit to having bought into before I knew anything) is remarkably akin to how people perceive Africa. “Tch. Those chaotic disordered black people.” (Or maybe used to perceive Africa? Calling Chris Blattman.)

The only aid-funded construction project I’ve seen so far is a detention center for minors. Sigh.

Caveat: I haven’t been here very long (hitting my 24th hour) and people say that last year’s retreat was held with the sound of gunfire in the background. Still, that particular sound can be heard in wide swathes of major American cities. I could occasionally hear gunshots outside my apartment in the Mission in San Francisco, yet only eight blocks over the streets were filled with yuppies eating peacefully at gourmet restaurants.

There’s a potential research project on applying methods developed to measure statistical discrimination in the labor market to measure investment and travel decisions across countries. Much of the research on labor market discrimination uses panel data to see whether the penalty of being black goes away as employers learn about true worker productivity. The hypothesis is that if employers are using broad stereotypes as a proxy for ability, then the effect of those stereotypes on individuals should wane as they reveal information about their actual ability.

Could you do a similar exercise with firm-level investment in countries? What is the economic impact of country-level racial perceptions? Does being a “black” country penalize you in the market for global capital and tourism dollars? If so, how much of the penalty is driven by perceptions of disorder? It might be that countries (like, say, Mexico) which already have well-formed reputations are less hit by increases in disorder.

An interesting follow-up story: INURED’s institute is in Delmas, a historically high crime area ... thus the stories of weapon discharges. But due to its community work, INURED has enough local contacts to guarantee their safety. That allowed it to rent a building that they could afford. The earthquake, however, appears to have caused the local crime rate to crash, so the newly arrived NGOs and aid agencies would pay an arm and a leg for the place, but INURED gets to keep it at a fraction of the market rent. For once, a first-mover advantage that helps the good guys.

Which leaves us with the question: why did crime crash in this neighborhood after the quake, and is that something generalizable across the city and country? There is some evidence that it is not, and crime may have risen elsewhere, but we don’t yet know. More as I find it out.

Thoughts?

Suresh in Haiti!

 I’m in Haiti for INURED’s retreat.

INURED stands for L’Institut Interuniversitaire de Recherche et de Développement. As the name suggests, the organization started in 1997 as an effort to connect Haitian institutions with international scholars working on Haiti. Some of its activities consist of straightforward stuff along exactly those lines, like managing scholarships from the Brazilian government for talented students from Cité Soleil to study at the Universidade Federal do Rio de Janeiro (Go, Partido dos Trabalhadores!), or running summer schools in Haiti taught by visiting faculty.

But INURED also has a great local network that it’s built up over years of working on ground in Cité Soleil, Port-au-Prince’s largest slum. They’ve been able to parlay this into a really marvelous rapid data collection infrastructure. This has allowed them to produce some cutting edge research, such as the first post-earthquake survey, which turned into this report. Anyone interested in randomized trials should partner up with INURED to run field experiments and collect data. The organization’s community-driven social science is pushing out the research frontier. Moreover, it’s one of the few organization that’s really trying to test what’s working and what isn’t in Haiti, systematically using local tacit knowledge to guide its research into things like mapping the (mis)allocation of aid funds. We’re here to brainstorm new research projects and new ways to connect Haiti to the outside academic world.

But also they have NO MONEY. All of us here at the retreat had to pay our own way. So everyone reading this should donate liberally to them. [Editor’s note: how??]

My whopping 24 hours of experience on the ground allows me, of course, to generalize and conjecture with impunity. Port-au-Prince’s economy exhibits many characteristics of a classic Lewis labor-abundance story. (Simplied version: imagine an overpopulated traditional sector, in which a big chunk of labor has no marginal productivity … but you should all read the original essay.) As in many countries, you see a lot of people here working at activities that could at best be called low productivity: men at the airport all grabbing your luggage and opening the door for you in anticipation of a tip, the ridiculously number of small-scale informal peddlers all selling the same thing, and the insanely excessive staff in every formal sector institution ... many of whom seem to be doing precisely nothing. The fact that you see these phenomena across poor countries brings a perverse joy to my heart; giving me hope in the possibility of social science.

Chile, Haiti, and disorder

 I think that Tyler Cowen makes a surprising mistake here when he compares the lawlessness in Chile and Haiti. Cowen:  “Haiti, on the other hand, remains fairly orderly and there have been reports that police corruption has gone down significantly ... Haiti is so orderly because a) looters would be killed on the spot, and b) the entire fate of the nation is at stake and thus every small event is taken very seriously.” He links to a CNN story and a tweet from somebody in Santiago reporting secondhand about Concepción. (God, I hate Twitter.)

I dispute the stylized fact. I am peripherally involved with (well, hearing about) a U.N. survey design in Port-au-Prince: the lawlessness is out of control. Kidnappings, assaults, and rapes are endemic. Concepción, on the other hand, has a looted shopping center. These are not the same thing!

Haiti seems orderly because expectations were much worse. Chile seems chaotic because expectations ... well, actually, Chile doesn’t seem that chaotic, given the scale of the disaster. More chaotic than it needed to be, but the state functions and there has been no organized violence. Minute-to-minute reports here.

The post perturbs me a bit, since I know many people who rely on Marginal Revolution for information, and I am afraid that the false comparison is going to mislead some of them. It is also a bit ironic, since the main point of the post was “context-dependence, context-dependence, context-dependence.” 

Yes. Context-dependence. By any absolute standard, Haitians reacted far more violently than Chileans to the earthquake, because the destruction was far greater and the state basically collapsed, even if it is now getting back on its feet. Apples and oranges, context-dependence.

Really bad war propaganda

  Look, I’ll cop to supporting the invasion of Grenada. It is true that the New Jewel Movement consisted of a bunch of authoritarian thugs. It is true that they became even more authoritarian when they ousted Maurice Bishop. It is true that they signed secret military agreements with the Soviet Union and Cuba and received $24 million in military equipment from Moscow, including 10,000 assault rifles, 4,500 submachine guns, 11.5 million rounds of ammunition, 294 portable rocket launchers, 16,000 rockets for said launchers, 84 mortars with 8,400 shells, twelve 75mm cannon with 600 shells, 60 crew-served AA weapons with 600,000 rounds of ammunition, 15,000 hand grenades, 7,000 land mines, thirty 76mm field guns with 10,000 rounds, fifty howitzers with 1,800 projectiles, sixty APCs, four coastal patrol boats, and 20,000 uniforms.

Moreover, the Barbadian prime minister, Grantley Adams, tried to persuade the U.S. to intervene on October 19, six days before the invasion. Military casualties ran to only 24 Cubans, 21 Grenadians, and 18 Americans, and the invasion killed only 24 civilians (21 of which in a tragic attack on what turned out to be a mental hospital). The intervention was and remains popular among Grenadians. Plus, it really honestly did restore democracy. Heck, considering the nature of the Gairy regime, it wouldn’t be unfair to say that it introduced democracy.

Would standing aside and letting Grenada collapse into civil war (or be intervened by Soviet-backed Cubans) have cost less in lives and resources? Probably not. Veterans of Operation Urgent Fury should hold their heads up high; you would have to go back to World War 2 to find a case of a more just war. 

That said, the CIA went on to distribute comic books across the island that would have turned me into a gibbering opponent of the intervention:

 
Clicking on the picture will take you to the full comic book. It only gets worse. Christ, man, I worked with psy ops production people ... this is just terrible.

The Commonwealth Realms of the Caribbean and the end of the British Empire

 This post has been substantially expanded. It was about nothing; now it’s about the slow withering of the British Empire, Margaret Thatcher notwithstanding.

Trinidad and Tobago was the first member of the Commonwealth Caribbean to become a republic, in 1976. After the Black Power disturbances of 1970, the government set up the Wooding Commission to review the clauses of the 1962 constitution. All sides of the political spectrum supported constitutional revision: some thought that its conservatism contributed to the instability; others worried in the aftermath of the Williams government’s powerful response to the riots that the pure Westminster system didn’t provide enough checks on the Prime Minister’s power. One solution to that problem was to strengthen the position of Governor-General ... but that caused a problem, since the Governor-General served officially as the Queen’s representative, and “among young people in particular the British Sovereign has no symbolic meaning.” The report did state some advantages of the monarchy — namely, a head of state “above the clash of race and class and ideology which makes up politics” — but they rejected them as inappropriate in the context of a head-of-state with actual executive authority, no matter how weak.* Williams did not accept all the recommendations of the Wooding Commission, but Trinidad got a new constitution ... and an elected President replaced the Queen as head-of-state.

Dominica followed Trinidad into republican status in 1978. One would have expected Grenada to follow.

In 1979, the New Jewel Movement shot its way into office. That came a surprise to nobody: the man who had ruled Grenada for the previous 12 years, Eric Gairy, was little more than a slightly more colorful version of Fulgencio Batista. His opposition knew this; they went so far as to unsuccessfully try to annex the island to Trinidad in order to prevent him from coming to power. (Unfortunately, Indo-Trinidadians were not particularly keen on bringing more African voters into the polity, so the idea failed.) After 12 years of increasingly corrupt Gairyismo (including a bizarre attempt to steal a Miss World competition) nobody was surprised when a small group of Marxist revolutionaries overthrew what was left of his government while Gairy was out of the country.

The rebels proceeded to issue a number of “people’s orders.” They mostly read like something out of an old Monty Python skit. People’s Order Number 1 declared, “The People’s Revolutionary Government now formerly enacts the Constitution of Grenada as hereby, has been suspended.” People’s Order Number 2 said that the People’s Revolutionary Government “shall be vested of executive and legislative power and the People’s Revolutionary Government shall appoint a Prime Minister.” People’s Order Number 4 went on to end all appeals to West Indian or British courts, People’s Order Number 7 established the People’s Revolutionary Army, People’s Order Number 8 created “preventative detention,” and People’s Order Number 10 reiterated the fact that the PRG was, in fact, issuing people’s orders: “For the time being, all People’s Laws shall become effective upon oral declaration and/or on publication of Radio Free Grenada by the Prime Minister or in the official Gazette under the hand of the Prime Minister.”

The weird thing was People’s Order Number 3. “The Head of State shall remain Her Majesty The Queen, and her representative in this country shall continue to be the Governor General who shall perform such functions as the People’s Revolutionary Government may from time to time advise.”

This became a problem when the U.S. was groping around for a legal rationale to intervene. They found a Governor-General, Paul Scoon, ready and waiting to provide them with one. In one of the stranger episodes in the long slow replacement of Britain’s empire with America’s not-empire, the British high commissioner to Grenada carried messages to the Governor-General on behalf of the United States and OECS, without London’s knowledge.

David Montgomery met Scoon on the Sunday before the invasion and asked him, “Would you welcome intervention?” Scoon replied that he saw it as the only thing that could prevent a civil war. He then agreed to issue an oral request for intervention, followed by a written order as soon as it was safe. A written letter to the Prime Minister of Barbados followed on Monday, October 24, 1983.

You are aware that there is a vacuum of authority in Grenada following the killing of the Prime Minister ... I am requesting your help to assist me in stabilizing this grave and dangerous situation. It is my desire that a peacekeeping force should be established in Grenada to facilitate a rapid return to peace and tranquility and also a return to democratic rule. In this connexion I am also seeking assistance from the United States, from Jamaica, and from the OECS through its current chairman the honorable Eugenia Charles (Prime Minister of Dominica) in the spirit of the treaty establishing that organization to which my country is a signatory.**

The Marines’ helicopter assault began at 5:00am on Tuesday.

The story gets stranger when you take into account Margaret Thatcher’s uncharacteristic reaction:

If you are pronouncing a new law that wherever Communism reigns against the will of the people, even though it's happened internally, there the United States shall enter, then we are going to have some really terrible wars in the world.

Who knew?

Why would a self-proclaimed socialist government, willing to ally itself with the Soviet Bloc, keep the Queen as its head of state? Especially when two nearby Commonwealth states had shown themselves completely willing to chuck her out? My guess would be that attachment to the monarchy must run very deep in the smaller islands. But that deep? Or perhaps they only played out two steps along the game tree. They knew that Britain almost certainly would not intervene under any circumstances, but it never occurred to them that the United States could as easily take advantage of the fact that the personal representative of Grenada’s head-of-state was not an appointee of the People’s Revolutionary Government.

Maybe so. I honestly do not know. The evidence is confusing. What is the role of the monarchy in the Commonwealth Caribbean? What should be its role? Does it persist out of popular sentiment, or simple inertia? 

Customs receiverships and Crown Agents

  So Doug is in Tanzania, working on something mysterious designed to make the world a better place. On a previous excursion to Congo, Doug discussed the general malfeasance of the Congolese government. He also thought hard about the administrative competence of the Belgian bureaucrats who ran the colonial government. They ran that government to little purpose, but they ran it efficiently. 

One way to stylize Congo’s dilemma is that the government can’t control its own agents. To which there may be a solution: get foreigners to do it.

Kris Mitchener and I have just written a brief piece for Paul Romer’s Charter Cities blog that summarizes our work on customs receiverships and Crown Agents. The piece draws from the early 20th-century experience of circum-Caribbean countries with customs receiverships, where countries relinquished management of their customs services to a small group of American managers, and the early 21st-century southern African experience of doing the same thing with a small group of British managers. There was a failure — the fellow who was able to run customs in Haiti found the more sophisticated Panamanians running rings around him when he became the fiscal agent there — but in general corruption went down and collections went up. Crown Agents, the organization that took over in the 21st century, had an earlier cameo on this blog.

Politically feasible? Well, Angola and Mozambique did it. So did several eastern European countries (in a slightly disguised form) when customs corruption looked set to hold up their ability to join the E.U. Long-term benefits or spillovers to other parts of the government? Well, at best the jury is out. But sometimes peoples need their governments to do certain things well right now.

Read the piece and tell us what you think.

1.6 percent!

  Happy 2010, all!

 
It turns out that over the past five years, we have earned an annual return of precisely 1.6% on our savings and investments.  Hooray! 

Coincidently, that number is how much the IMF believes the Caribbean’s economy to expanded in 2009. Hopefully 2010 will be better. The Eastern Caribbean countries have just taken a proactive step forward, strengthening the OECS with the new Treaty of Bassaterre.  The treaty basically does three things.  First, it gives the OECS the authority to legislate on the creation of a full common market.  Right now, the OECS is a customs and currency union, but there are barriers to internal factor mobility between the islands.  Second, it gives the OECS the authority to enforce the legislation ... basically via national courts and, ultimately, the Eastern Caribbean Supreme Court.  Third, it creates a quasi-executive  E.U.-style Commission headed by a Director-General to run the organization.  I say “quasi,” because the Director-General won’t have the ability to directly issue orders to the executive agencies of the various OECS governments, let alone act directly upon the citizenry, but he or she will have the ability to use the courts to take governments to task.  So as long as the OECS governments are in fact under the rule of law, the head of the OECS will indeed have quite a bit of de jure authority.

(Some time ago, Doug Muir and I had a debate about the E.U. that ran along these lines.  I think I convinced him, but it can be very hard to know.) 

So it isn’t quite a federation.  And the new OECS Authority (basically, an assembly of heads of government) will make legislative decisions only by unanimity.  But it takes the Organization about as close as you can get without crossing that line.  (Their security forces also bump up against the same limit, sharing training and commands.)  But it is a step forward for a group of islands that were already rather strongly united.

In theory, Trinidad is supposed to join in 2013.  Or maybe 2011.  It isn’t clear. I also doubt that it will happen.  Although it would be interesting if it did!

Thoughts on integration?

The friendly society

 Governor Carter refused to limit emigration because the remittances sent back to Barbados from the Panama workers had markedly improved the economy, especially for poorer tenant farmers.  In a country that had recently been on the brink of collapse, he was not going to tinker with that.

 
The direct impact of the remittances was not that large.  In 1906, when Carter declared their importance, they came to 73¢ (U.S.) per inhabitant per year; call it three days wages.  That is not nothing, but it is also not an economic revolution.  Over time remittances grew, peaking at $2.39 per person in 1913 — a bit more than a week’s labor for a male worker at 1910 wage rates.  Not nothing, but not the millenium, either.

But the indirect impact was huge.  First, it bolstered the growth of smallholders.  In 1897, an estimated 8,500 small proprietors held a bit less than 10,000 acres.  By 1912, 13,152 smallholders owned plots.   Assuming that the average size of holding remained constant, this represented an increase in smallholder ownership of 5500 acres, or over 22 square kilometers, five percent of the land area of Barbados.  By 1929, the number of smallholding households had further increased to 17,731.  Land ownership on the island remained astoundingly concentrated, but the percentage of Barbadians who owned property rose from 18% in 1897 to 40% by 1929.* 

Second, it supercharged the Barbadian banking system.  Barbadians opened 16,094 new accounts in government savings banks between 1906 and 1913, and deposits increased 88%.  In 1920, deposits per person surpassed $11.  That was a level of financial penetration about half of contemporary Spain and two-thirds of Italy; very high for a country as poor as Barbados.  It prefigured the island’s emergence as a regional banking center a half-century later. 

Third, it prompted the emergence of a Barbadian social insurance state.  The “friendly society” served as a form of insurance pool.  For a weekly fee of 10 to 12 pence, the societies provided their members with sickness insurance, unemployment insurance, death benefits, free scholarships to household members, and an annual “bonus.”  In 1901, there were 101 societies; between 1907 and 1910 a further 110 were founded, peaking at 260 in 1920.  Their membership grew from 13,933 in 1904 to 46,207 in 1920.  The 1921 census found that 156,312 people lived in households belonging to a friendly society.  That was 94 percent of the population.  Alongside the friendlies were the “landships,” which provided similar services along with ceremonial drills and uniforms modeled on the Royal Navy. Infant mortality continued to lag the rest of the Caribbean until the 1950s, but the societies aided a huge increase in literacy, to 93 percent by 1946. 

In the Zone

  The Panama Canal Agency took charge of picking the workers and getting them to from Barbados to the Canal Zone. Recruiting took place in Trafalgar Square, in Bridgetown, conveniently near the main police station.  Today the place is called National Heroes Square (although a lot of people use the old name) right outside the Parliament building. 

 
Agents went out into the crowd to interview and select potential workers. A doctor then checked the potential workers, selecting those who would receive a contract.  In 1907, Arthur Bullard described the scene as follows:

Several policemen kept the crowd in order and sent them up into the recruiting station in batches of 100 at a time.  As the men came up, they were formed in a line around the wall.  First, all those who looked too old, or too young, or too weakly, were picked out and sent away.  Then they were told that no man who had previously worked on the canal would be taken again.  Then the doctor told them all to roll up their left sleeves and began a mysterious examination of their forearms.  He saw that a few men had been vaccinated by him already, and these were sent away.  One protested that a dog had bitten him there.  Then, he went over the whole line gain for trachoma, rolling back their eyelids and looking for inflammation.  Seven or eight fell at this test.  Then he made them strip, and went over them round after round for tuberculosis, heart trouble, and rupture. About 20 of 100 were left at the end.

The selected migrants reported back to the docks a few days later.  After a second medical examination and a check to insure that every emigrant had a number that matched the one on their contract, they boarded the steamers, where they had to find deck space and food for themselves during the 12 day voyage to Colón.  According to a report presented to the Barbados Legislative Council, the atmosphere on the docks was fairly hostile towards the ruling class.  The crowds would “abuse whites and aggressively denounce them” before boarding. 

 
The anger was understandable, given the situation the emigrants were leaving.  Ironically, the departure of so many angry young men gave plenty of leverage to those who stayed behind.  One prospective emigrant was heard telling his co-workers, “Why you don’t hit the manager in the head and come along with we?”  His co-workers refrained from assaulting the manager, but there was a wave of plantation labor disputes, and the following song became fairly common:

We want more wages, we want it now
And if we don’t get it, we’re going to Panama
Yankees say they want we down there
We want more wages, we want it now

And what do you know?  Wages went up.  By 1910, the American consul in Bridgetown reported that agricultural workers received 30¢ per day, a 25% rise in nominal wages over the 1900 level.   More importantly, unpaid labor — remember the located labor laws? — basically disappeared.  Planters reacted to the new environment.  First, they started to employ tenant women in the fields.  Second, they modernized production.  In 1910 there were no modern sugar centrals on the island — intead, windmill-powered presses wasted upwards of 30% of the raw material.   By 1921, in contrast, 19 modern sugar centrals had entered operation.  Third, they mobilized politically to halt emigration.

Barbados had seen the emigration movie in the 1870s, when Guyanese and Trinidadian labor brokers began recruiting on the island.  That time around, it ended with the Emigration Act of 1873, which effectively prevented labor recruiters from operating in Barbados.  (My wife’s grandfather is from Barbados, but he left for Trinidad in the early 20th century.)  Emigration fell from 2,676 in 1873 to only 613 by 1876. 

This time the movie ended differently.  In 1906, the Barbadian parliament passed a bill giving Governor Gilbert Carter the power to halt emigration.  Two angry public demonstrations convinced the Governor to take the then-extraordinary measure of publicly proclaiming that he had no intention of using his new powers.   The parliament then demanded that he appoint a commission of inquiry into emigration; he refused.  Five years later, in 1911, Carter retired and returned to Britain.  The new Governor, Leslie Probyn, appeared to bow to planter pressure by declaring a ban on labor recruiting for Panama ... but he took no action to enforce it.  Barbadians continued to leave for Panama. 

Emigration, then, had palpable economic effects on Barbados.  It raised wages (albeit to still-low levels) and prompted the renewal of the sugar industry.  That is not nothing.  But there was another effect.  In fact, that other effect was why Governor Carter refused to appoint a commission of inquiry ...

Teddy Roosevelt and Spanish labor unions save Barbados, hate Barbadians!

  I don’t have a whole lot of emotional attachment to the madre patria, not where it counts.  After all, the parliament has passed a law giving the descendents of Civil War refugees the option to apply for a passport.  Yet I have zero desire to do it.  No, I have a negative reaction to doing it.  In other words, at the level where it counts, my people are the people of the United States of America.

But sometimes I can’t resist borrowing a phrase from my good friend (and great American) Carlos Yu:  “Oh, my peoples.” The story of the labor troubles on the Panama Canal is one of those times.

 
In 1904, the United States began construction of the Panama Canal in earnest.  Problem was, it needed laborers.  Lots of laborers.  Preferably cheap laborers, which ruled out hiring Panamanians.  (The Canal labor force would peak at more than a quarter of Panama’s economically active population.  Wage rates would have skyrocketed, even had that many people been interested in killing themselves to dig a big ditch ... which they were not.)  So the U.S. turned to the same place from which the earlier French canal effort had got its workers:  Jamaica.  Problem was, the Jamaican government remembered the disaster that was the repatriation of Jamaican workers after the French canal effort collapsed in 1889.  The Crown Colony government insisted that the Americans guarantee repatriation costs for any and all workers.  That ended the idea of using Jamaican labor; ultimately, only 47 worked on the Canal.

At this point the Barbadians, and later the Spanish, enter the story.

With Jamaica out, the Isthmian Canal Commission began recruiting in Barbados.  The first groups of Barbadians to arrive, however, proved too malnourished to accomplish their assigned tasks. “Not only do they seem to be disqualified by lack of actual vitality, but their disposition to labor seems to be as frail as their bodily strength.”   Governor Stevens himself wrote, “I have no hesitancy in saying that the West Indian Negro is about the poorest excuse for a laborer I have ever been up against in thirty-five years of experience.”  This should not have been surprising to anyone who knew about conditions on the island at the time, but we’re talking about Americans.  (Insert the first “oh, my people.”)  After bringing in almost 10,000 Barbadians, the Canal Zone management was disappointed with the results.

The Isthmian Canal Commission now decided to turn to, in the words of a Commission official, the “semi-white foreigner (Dago).”  Between 1906 and 1908, the Isthmian Canal Commission hired 8,000 Spanish workers.  It paid them twice what it paid Barbadians.  Now, it would be entirely reasonable to conclude that this was due to racism, but the Americans running the show weren’t particularly enamored of “dagoes.”  Rather, the higher salary was what they needed to offer to get people to leave the madre patria for Panama, and the Americans were willing to pay it because the Spanish were physically stronger and more robust than the half-starved Barbadians. 

The Spanish, however, were also the heirs to Spain’s militant labor tradition.  (Here is where the second “oh, my people” comes in.)  Spanish workers started the first major strike on the Canal in 1907.  The United States tried to use Italians to break the strike, but it didn’t work; they could only attract a total of 1,941 in 1906-07, after which they received no more.  So the American managers used the Barbadians to restrain the Spanish.  As one foreman wrote, “I could keep them both on their metal by rivalry between the two.”  The result, unsurprisingly, was an all-out riot between Spanish and Barbadian workers in 1909.  

Spanish militancy led the Canal Zone to replace Spanish workers by any means necessary.  The Americans pretty quickly figured out that Barbadian productivity rapidly rose to Spanish levels with access to enough calories.  The head of the Canal effort, a racist Brooklynite named George Goethals, reduced the work day from ten hours to nine in 1907, which lowered exhaustion, and required all workers to purchase three full meal tickets every day.  Previously, many Barbadian workers had chosen to subsist on sugar cane in order to save more money to send home — understandable, considering that meal tickets cost 9¢ ($1.98 in today’s money) and they earned only 68¢ for a nine-hour day, but terrible for their health and energy levels.  Add to that the fact that American foremen (with some head-banging from higher management, regardless of their own retrograde racial attitudes) learned to treat the Barbadians with some modicum of respect, and you can predict the result:  by 1909, the Americans were able to get the same work for less cash from the Barbadians, and stopped hiring Spaniards. 

The Spanish did not go quietly.  A violent wave of strikes rocked the Canal Zone in 1911 and 1912.  But the result was predictable.  (Oh, my peoples.)  The strikes ended with the complete replacement of Spanish labor by West Indians, mostly from Barbados.   By 1913, the Isthmian Canal Commission had brought in 19,900 Barbadians, not including the many women who followed their husbands and a continuing (if less well-recorded) migration as construction work continued after the Panama Canal’s offical opening in 1914.  In fact, the Canal would not be fully open to commercial traffic until 1920.

The ultimate migration turned out to be much bigger than 19,900.  In 1901, Barbados had a population of 195,558.  In 1921, it had a population of only 156,744.  Extrapolating from existing birth and death rates, the population of the island should have been 220,412 in 1921, implying a net outmigration of 64,000 people.  This obviously had massive effects on Panama (which had a population of only 450,000 in 1921, not including the Canal Zone) ... but what did it do to Barbados? 

Truth be told, I do not know for sure, but I have a strong guess, which will have to wait for a later post.  While we’re waiting, what do you think?

Why is Barbados such a nice place?

   Barbados is a very nice place.  The water is wonderful, of course:  the limestone makes it a turquoise color that simply doesn’t look real.  But it isn’t just the water that makes it so nice:  Quintana Roo and Yucatán also have very nice limestone-saturated water.  No, what makes Barbados especially nice is the society inhabiting the island.  Crime is low, human development is high, institutions seem to work.  It terms of ex-colonies, it is the anti-Congo.  The question is why the place is so nice.  

 
One answer, which I find unsatisfactory, is good macroeconomic policy.  In that view, Barbadian governments managed the economy particularly well after independence, and thus the island grew (relatively) rich.  The problem with that view is that many of Barbados’ unique qualities emerged well before 1966.  In 1960, for example, real primary school teacher salaries in Barbados were 31% higher than in Jamaica, educational spending as a % of GDP was 52% higher and real per student primary school spending was 2.3 times higher.  In 1950, its GDP per capita was the third-highest in the British Caribbean, after an off-the-charts already-developed Bahamas and oil-rich Trinidad.  It was a full 60% higher than Jamaica’s.   Barbados and Trinidad were the only two countries in which less than 40 percent of the labor force worked in agriculture.  (32% in both countries; the Jamaican number was 57%.)  Lifespans at birth were five years higher than elsewhere in the Caribbean (except Trinidad) if still only 56 years.   Other statistics are hard to come by, but the general impression is that for all the poverty — and it was widespread — Barbados had already diverged from the rest of the West Indies.

Except here’s the thing:  if you jump backwards from 1950 to 1900, Barbados doesn’t look so special.  In fact, the place was a disaster, close to becoming what we’d today call a failed state.  In 1902, facing riots, assassinations and economic collapse, the U.K. would take the unprecedented step of approving the 2008 equivalent of a £164 million relief grant (measured as a percent of Britain’s GDP) ... or in purchasing-power terms the modern equivalent £125 per man, woman, and child in Barbados. 

What had gone wrong?   

At the turn of the century, Barbados was not a pleasant place.  Subsidized European beet sugar caused sugar prices to crash during the “bounty depression” of the late nineteenth century.  As a result, the financial system of the British West Indies essentially collapsed between 1884 and 1899, as the merchant houses that had provided both working and long-term capital to the sugar industry disappeared.  The sugar price and resulting financial collapse drove down living standards, as plantation jobs dried up and imports (especially of food) became scarce.  Reports of hardship overwhelmed the Colonial Office.

The vast majority of the black population consisted of tenants who rented small plots from nearby plantations and also worked the main estate under the “located labor” laws that required labor from tenant farmers as a condition of tenancy.  Overpopulation and the located-labor laws resulted in very low wage rates.  In 1900, a male Barbadian agricultural worker on the open market earned 24¢ (U.S.) per day, at a time when farm laborers in the South Atlantic region of the United States — the poorest part — earned 36¢.   A craftsman in Barbados might earn twice that; a female agricultural worker less.   Child labor was common, at an average wage of 3¢ per day. 

Low and falling wages, not surprisingly, had a lot of bad consequences.  Death rates rose from 22 per 1000 in the 1860s to 29 in 1891-95.  An 1897 royal commission reported that falling wages meant that “the effort to keep the children at school is not so great as it was years ago.”  Low wages also meant that undernourishment ran rampant. Barbados operated on a food deficit, growing sugar to buy food, and the small gardens of its tenants failed to make up for the lack.  As a result, infant mortality was shockingly high, even by the standards of the British West Indies.  In 1900-04, for example, Barbados registered an average of 282 infant deaths per 1,000.  In comparison, Jamaica registered 171 and Trinidad only 162.  

In fact, despite its orderly appearance and reputation, Barbados appeared to be on the brink of collapse by the turn of the century.  Its revenues chiefly came from import duties on food.  The colonial government, facing bankruptcy, raised tariffs in 1896, which had the result of worsening the problem of undernourishment.   Unrest boiled over in 1898, when the outbreak of war between Spain and the United States sent the price of bread in Bridgetown up 20 percent.  Hundreds of people organized a “potato raid” against a plantation.  Three weeks later, someone shot and killed the speaker of the Barbadian assembly (and a major planter) as he rode home in his buggy from the capital.  The island might have erupted had a hurricane not struck a week later, “wash[ing] away all concerns except those of immediate survival.”  

London eventually approved the aforementioned relief grant.  In a desperate attempt to rescue the Barbadian economy, even at the cost of weakening the island’s imperial links, the British government also entered into hurried negotiations with the United States for a treaty that would cut U.S. tariffs on Barbadian sugar to 88 percent of the prevailing rate.   Unfortunately, in May 1902 the United States allowed the tariff-free entry of Puerto Rican sugar, and the following year Congress signed a treaty permitting Cuban sugar to enter at 20 percent below the prevailing rate.  Not surprisingly, Barbadian sugar exports took another hit. 

The Barbadian government (the Barbados parliament dates to 1639) also responded to the accelerating chaos.  In 1901, the Representation of the People Act changed the franchise qualification to £50 annually from all sources or £5 in rental income from land, which allowed (very few) blacks to enter.  In 1902, it established the Barbados Volunteer Force to supplement British troops.  The year 1903 was relatively tranquil in Barbados, with only the usual amount of potato raids, but the outbreak of the Water Riots in Trinidad made it very clear that fragility characterized what social peace that Barbados might enjoy. 

It is extremely unlikely that the British would have allowed Barbados to collapse.  After all, 9% of the population was “white” and a further 24% of “mixed race,” giving parliamentarians back home strong reasons to keep the place afloat.  Moreover, even had there not been a large population of self-identified “Englishmen,” neither domestic nor international politics would have made it easy for a British government walk away from its commitment to its West Indian dependency.  Nor is it clear that Britain would have wanted to walk away — the number of troops needed to restore order was relatively small, as were metropolitan relief expenditures. 

On the other hand, there wasn’t a lot to show that Barbados would overtake the other islands within a few decades.  Yet it did.  So what happened? 

The limits of empire

 The world really needs a good game-theoretic model of informal empire.  I suppose Bruce Bueno de Mesquita already has one, but I’d like to see something more specific. 

What’s informal empire?  Well, if “empire” happens whenever one sovereign state exerts its authority over an area previously under a different sovereignty (or none at all) then that empire is “formal” when the imperial state exerts its authority through a bureaucratic chain-of-command that runs from the imperial executive through the local government and down to the person in the street in the new territory.   (Similarly, an empire has formal characteristics if judicial decisions can be appealed upwards to courts in the center, or if the imperial legislature can pass laws for the subordinate territory.) 

Since 1898, the United States has generally eschewed formal empire.  The exceptions are Haiti in 1915-34, the Dominican in 1916-24, Japan in 1945-52, Germany in 1945-55, Okinawa in 1945-72, and Iraq in 2003-04.  (The European Union exercises formal authority over parts of the governments of Bosnia and Kosovo.)  The U.S. has relied on a combination of treaty arrangements, sanction mechanisms, and moral suasion to get its satraps to do what the government of day wants them to do.  The famous SOFAs kinda sorta sometimes formalize quasi-imperial arrangements by giving U.S. troops special privileges inside host countries, including sometimes the right to shoot people, but that is not the same thing as giving the American government the right to give local bureaucrats direct orders under the threat of unemployment or imprisonment.

Sometime informality works and sometimes it doesn’t.  Right now, informal empire has hit its limits in Afghanistan and Honduras.  The U.S. can’t make President Karzai crack down on corruption, form a coalition with Abdullah, or negotiate with the Taliban.  Considering both the number of troops we’ve got running around the country and the number of dollars we pour into its government budget, the lack of influence (let along control) is pretty depressing.  What kind of an empire is that?

In Honduras, the recent agreement between Micheletti and Zelaya appears to have collapsed.  The Honduran legislature has not voted to reinstate Zelaya, and Micheletti is continuing his modus operandi of “what the hell?” by picking a fight over who will lead the interim cabinet until Congress votes.  Washington may be able to pick something up out of this mess, but U.S. leverage is limited.  Aid is suspended and visas were as well until recently; stronger sanctions, meanwhile, will just sock it to a lot of very poor people.  We could give up and run out the clock, which would be the best option if the rest of the hemisphere agreed.  They don’t, so something had to be done, and a few days ago it looked as though the Secretary of State had done it, by brokering a solution.

Only now Micheletti keeps going off the reservation, and there seems to be no quiet easy way to keep him on it.  There is still something a little ridiculous about the lack of American leverage.  What kind of an empire is this?

Not much of one, actually.  To be honest, I suspect that the U.S. will be able to knock some sense into Micheletti.  If pushed, I’d bet on the agreement coming back to life.  But still, the limits of informality are clear.  Even in Afghanistan, let alone Honduras, local political actors are autonomous, and the threats that the U.S. could use to sanction them are not credible. 

Running an informal empire is complicated, and running a formal one is often impossible.  The implications are left as an exercise for the reader. 

Demography matters, and a music video

  There is an interesting (if rarely updated) blog called “Demography Matters.” It's hit a few interesting topics lately.  Randy McDonald is the driving force behind it.  For those of you who don't know him, he wrote the defining takedown of the whole “Eurabia” nonsense, aka the idea that immigration and differential birthrates will eventually give Europe a Muslim majority.  But the blog is a lot more than that.

Here is a discussion of Greenland.  Short version:  considering the country's dependence on Danish expats for skilled labor, even a non-independence independence of the sort negotiated by other microstates could lead to disaster.  The population is shrinking despite high birthrates.  Maybe they'll get lucky and find oil.  More likely they will remain a dependency of Denmark forever, most likely de jure but definitely de facto.

The blog also recently discussed Iran.  Short version:  looks like Europe!  Crashing birthrates could fuel an economic boom if only the place could get the policies right.  In comments there is an interesting discussion of the fact that American birthrates have stayed above replacement ... and that much of that difference is because urban birthrates in the U.S. aren't appreciably different from their suburban or rural equivalents.  The really weird fact?  Canadian birthrates are crazy lower than U.S. ones, even in such similar places as Washington and British Columbia. 

Finally, it presents a scary version of Cuba's future, in which the country enters a demographic death spiral.  All it lacks is a projection of the worst case scenario: what would Cuba's population and age pyramid look like in 2050 if it goes the way of Ukraine and stays there?

Below the fold is a music video.  It is for Randy, for reasons he understands.  Essentially, while not my cup of tea, it shows what can be accomplished in his preferred genre in both aural and visual terms when attempted by two rather accomplished artists.  Enjoy.

The great recession

  This weekend, my wife and I made our way up to Fort Lauderdale Executive Airport to grab a helicopter ride above ground zero for the real estate collapse.  It isn't just in marginal neighborhoods, as some observers have suggested.  Spot the foreclosure in this photograph.

In fact, if you look closely, you can spot a second distressed property in the picture. 

Nor is it only individual single-family houses.  South Florida is dotted with what Mexicans used to call “obras negras”:  stopped construction projects left to rot.  And in the South Florida humidity, they will rot:  unsealed foundations will flood and unprotected fixtures will erode.  They are calling them “ghost towers” down here. 

It was a Sunday, but note the lack of construction machinery around the site.

In fact, readers of this blog have already had contact with what became a pair of ghost towers.  Last year, we spotted my brother working on a high-rise located on the border of the Everglades, far out on the urban edge, near nothing but a ginormous shopping mall.  Now it is an infamously distressed complex in which, as far as the local papers can figure, no one lives.

Of course, the recession is also visible at ground level:

El Caribe americano

  Lots of Stars-and-Stripes on the Mall of course, a few Texan ones, two French tricolors, one Ghanaian Black Star, a Californian red-star-and-bear ... and multiple Trinidadian, Jamaican, Haitian, Grenadine, Grenadian, and Guyanese flags. 

The Commonwealth Caribbean has an interesting emotional relationship with the United States, all the more so with this inauguration. 

P.S.  Why is Washington overrun with the Miami P.D.?  Dude.  Miami??

P.P.S.  Did Governor Paterson just call Hillary Clinton the best senator that New York City has every had?

P.P.P.S.  That's a lot of booing for the still-President.  I suppose I shouldn't be surprised.  I much prefer the singing, "Hey hey hey, good bye."

Barbados, Jamaica, institutions, and a great reason for a research trip

  There is a debate inside the economics profession about the importance of institutions, broadly defined.  One side of the battle holds that institutions are everything.  Countries can institute all sorts of bad policies and still prosper over the long run if they have “good” institutions — France is a common example.  A subset of this group likes to argue that a particular set of legal institutions is very important.  You can sum their argument up as “Common law good, civil law bad.” 

The “institutions as epiphenomena” side of the debate has mostly given up, with the valiant exception of Greg Clark.  That said, strong opposition still exists in the form of two arguments: “institutions aren't everything” and its subset, “legal origin theory is total b@ll$#/t.”

One obvious experimental laboratory is the British West Indies.  Not a whole lot of good came out of the collapse of the West Indian Federation, but one bit of lemonade coming out of that lemon was that it left us with a collection of independent and quasi-independent states with a similar institutional background.  Now come two authors with a comparative paper on Barbados and Jamaica, arguing that it is macroeconomic policy, not the legacy of history, that explains the different paths of the two nations since independence. 

Are their arguments convincing?  More below the fold.