Reading the World

Archives for Humanities

The Rule of Law – Sovereignty of Parliament

As ‘The Rule of Law’ is written from the anglo-centric perspective, the final chapter of the book is a total focus on the sovereignty of the parliament which is present in many commonwealth nations (and others). As this section is deeply complex, and the sovereignty of parliament may be an alien term to many of you uninterested in the world of law, it may be useful to have a simplified definition. What parliamentary sovereignty means, is that a legislative body, in the UK’s case the House of Commons, has independent authority over the executive (government) bodies, and the judiciary bodies. This essentially means that the House of Commons could repeal, change or instate any sort of law that they wanted, regardless of ‘the rule of law’ this book describes. It hardly seems fair, but there have been times where this ‘power’ has been stretched to it’s limits of sovereignty.

The famous instance (if you’re into this stuff…) which I’m alluding to, is R (Jackson) V. Attorney General (basically Jackson against the house of lords in this case). I won’t go into the intricacies since reading this will probably bore more than half of you, but what the outcome was from this case was that it was argued that the Hunting Act 2004 was an invalid form of legislation, because the legislation used to pass it through Parliament was itself invalid. Sadly, I can’t go any further than this due to many redundancies further up the line in this case. It is also sad that Tom Bingham, or Lord Bingham, did not include this example in his fine publication in a simple form I could quote. However it is quite understandable since he himself was the Judge who gave the decision by representing the House of Lords.

The Rule of Law – A general overview

Unlike what the title suggests, the target audience of this book isn’t specifically for those seeking a legal career. This book is more about how ‘the rule of law’, a commonly used phrase, is applicable in the context of ruling modern society. As Tom Bingham is a former Lord Chief Justice of England and Wales and read modern history at university, this book is mostly an exploration of historical origins of ‘the rule of law’ from a legal perspective making the read simple.

The book is split into three parts, and if you had to throw out the book after reading one of the parts, I’d have to say the most informative part of the book is the first. As much as it is a history lesson, a fun one for that matter, it does paint a very clear picture of how the ‘law’ came into shape. Bingham starts from something we all know from assembly, the Magna Carta of 1215 and charters the journey to the Universal Declaration of Human rights of 1948. The reason why I enjoy this section so much is because it focuses mostly on how natural laws and human rights laws were upheld in the USA, France, the UK and the world by the time the Declaration of human rights was implemented. As there has been greater emphasis on the need for more ethical and moral lawyers in this day and age, I can’t help but find this section of the book the most important in remembering this fact.

Agglomerations and the Journey to Development

‘The Bottom Billion’ by Paul Collier is a very interesting read. Having chosen it as the first book I was going to read this summer, I’ve decided to focus on my three blog posts around it. The reason being that it is most probable that I have forgotten more of this book, than any of the other ones. Thus, these posts will act as a recap for me. Something that greatly caught my attention was the mention of agglomerations in this book, and there significance to economic development. The concept is fairly simple, the word is not. An agglomeration is defined by Oxford Dictionaries as ‘collect or form into a mass or group’ and this is a fairly good definition. When used in economics and equally, I’m sure, in business, an agglomeration is specifically a collective group of firms around the same geographical location. The argument goes is that, as soon as it is cost beneficial to do so for the first firm to set up in the location, it will be even more beneficial for the next and the next, and so on.

Why is it more and more beneficial? Well, the main reason is because the costs of production, when there are many firms grouped together, often goes down. The reasons are because competing local suppliers of the needed capital are attracted due to the more guaranteed local demand in that area. Equally, if the firms are in similar industries, then such benefits are extended, the specialization of each firm can allow it to become more efficient, working with other close-by specialized firms and, the division of labour can greater occur. Equally, the initial training costs of labour are endured greatly by the first firm, after that, trained labour is more frequent and more readily available. Infrastructure too, is mainly the cost of the initial firms, when more firms join there is a lesser need for financing such infrastructure, and a lesser cost when they do.  Especially in the far less developed countries of the world.

The knowledge of agglomerations isn’t only an interesting thing to know, but it is also very useful for understanding why ‘the bottom billion’ (as Paul Collier puts it) are left behind, unable to develop and with vast amount of stagnation. Twenty or thirty years ago saw the dawn of Asian development. Countries such as Thailand had vast amounts of cheap labour and, when it was beneficial for western firms to do so, they moved. All it took was the first firm to see it as a profitable move, and the rest would follow like dominoes. The wage gap between the US (and other western countries) was sufficient enough to make the costs of training labour, infrastructure and initial, other, quality and transporting costs, less than the greater labour costs in the west. As the first firm/ firms realized this, and moved to Asia, many followed (as the costs of production started to steadily fall), and it became a more and more financially beneficial move for later firms. Of course, this only goes so far, labour costs start to rise and infrastructural and supplier benefits become less and less marginally cheaper from one firm to the next. At this stage, the agglomeration has benefited greatly and further benefits are slow and often out paced by the rising costs of other factors of production (e.g labour).

Now, Asia has an abundance of cheap labour, some predict that even in Africa’s greatly impoverished state, it may be a couple of decades before the wage price gap (and the gap in costs for capital too) of many of poorest African countries, with Asia, becomes sufficient  to make it a rational, economically beneficial, decision for the first firm to move. The peak of low to middle income development during the 1980’s is gone, and as the ship has sailed back, we can only guess how long we have wait before it sails back.

The Curse of Natural Resources

Paul Collier’s ‘The Bottom Billion’ was one of my chosen summer books and an interesting, and thought changing view of natural resources caught my attention. Labelled as ‘The Natural Resource Trap’ chapter 6 of ‘The Bottom Billion’ describes how resources can act as a trap for developing countries trying to escape poverty.

A country with abundant natural resources, you may feel, is exceedingly lucky. Although on the face of it, large quantities of resources may seem to be a key and fundamental factor in economic development and growth, when you look into it, natural resources (in abundance) appear to be a greater hindrance in a free market economy, than they do of benefit. The first issue is that of foreign exchange. When goods and services are exported, they generate foreign exchange. That is, when a foreign importer demands the goods your country is exporting, they have to purchase these goods in your domestic currency (or at least, you later naturally exchange their currency for yours), thus they have to exchange a certain amount of their currency for yours on the exchange market. The result of such an exchange is that the demand for your currency rises, leading to an appreciation of your currency (your currency becomes more expensive/ stronger), and that there is a larger amount of foreign exchange domestically available. Now, exporters create foreign exchange and importers need this foreign exchange, in order to import goods/ services from abroad (because they too have to purchase the goods in the exporter’s currency).

So, what is the problem with this? Well, simply and firstly, with a stronger currency, imports become cheaper, or in other words, domestically produced goods become relatively more expensive. The result of such a situation is the diversion of demand from domestic markets to international markets. Not only that, but items that cannot be traded internationally also become more expensive relative to other goods (which can be traded internationally), therefore resources get diverted to producing these domestic goods (the allocative function of a free market). Therefore, resources get diverted away from industries which could export before and towards domestically focused markets. The issue with this is, exporters in infant industries (new underdeveloped industries), due to the appreciation of the currency, can no longer survive on the international market, and so, in developing stages of the economy, the discovery of natural resources can cause great harm. The economy becomes reliant upon the natural resources, in order to fund its imports, and future sustainable growth is greatly affected. The dutch disease theory suggests this, that appreciation caused by the discovery of natural resources (or aid for that matter) causes other, more sustainable and developing export industries to become uncompetitive, and thus fail to fully develop.

Secondly, as the former hinders growth greatly, a result is that entrepreneurial efforts in developing countries are far less successful and so, a reliance on developed countries (which import these resources) becomes greater and greater. The level of unemployment, if the resources are in capital intensive fields, may also rise substantially resulting in a demoralizing colonial psychology to the country as they rely on the developed countries. If these resources were only used domestically, then of course, the issue ceases to exist but in a perfectly free market economy, this would seldom occur. The situation would have to be unique in so far that the costs of extraction were such that when coupled with transport costs, it ceased to be profitable to export however when transported only domestically, they were sufficiently competitive with international markets (the world price of that resource).

Thirdly, the issue of inequality becomes even more significant. The distribution of wealth is usually, in resource rich countries, highly skewed to the few who own the resources. Equally, corruption becomes a far greater threat and the wealth of the few, is often greater due to it. A lack of regulation allows deals to be made discretely by public officials, without a fair auction. The threat and probability of civil war also becomes ever greater due to the increased inequality and, the ability to fund such wars with the capturing of the natural resources (and future financial prospects from setting up such deals).

Too big to fail

AIG, Fannie Mae & Freddie Mac, Goldman Sachs and JP Morgan were bailed out. Many others were acquired or left bankrupted. Helping out these big financial institutions is reasonable for the government to have done, because the banks have complex connections with one another; if these banks went bankrupted, there can be a contagion spread of the crisis. The tax collected was used for this bailout. But there is no sign of any reciprocation to these taxpayers whatsoever—they pay for free. And if the policy continues to persist, another potential crisis is always possible. This is because large depositors are indifferent to the bank’s regulation and their high risks, as these depositors know they would be bailed out by the government. In addition, the current economy has not proved that the bailout is worthy: the economic growth is stagnating, and the number of the unemployed is still hovering at 7.4%, while the CEOs—the ones who caused the catastrophe—still receive their pays and bonuses.

Rent-seeking

The financial calamity during the year 2007-08 was partly—but some say mostly—a result of rent-seeking. Bankers, CEOs and the executives run the banks to satisfy their own interests, ignoring the externalities—they don’t care what’s going on outside their financial institutions. They earn outsized bonuses, whilst ordinary employees were laid off. And they are causing pollutions to the rest of the society—we are bearing the costs of their actions. One of the effective rent-seeking tools is depriving transparency of financial products from customers. Banks target less educated uninformed customers and “over-the-counter” derivatives (where buyers almost have no knowledge of the product and the sellers use this as an advantage) are the bankers’ favourite. This way, banks had made ample profits. Also, because banks are teemed with lobbyists, dealing with regulations were not a problem. With their political power, banks can enjoy being monopolies—there are a large number of banks in the U.S., and yet only four of them contribute to nearly a half of the country’s banking asset.

Rent-seeking, in addition to financial crisis, can also be a danger to political stability of a country—it leads to violent demonstrations and civil wars, similar to the Arab Spring. 

Adam Smith’s “invisible hand”

Adam Smith’s—a Scottish pioneer of political economy and a moral philosopher—“invisible hand” is often used by modern economists. Smith states that the pursuit of self-interest can benefit the rest of the society, even though that act may not be considerate or benevolent for others. Smith raises a callous landlord as his example in his Theory of Moral Sentiments: although the landlord wants all the harvest for himself, he alone is incapable of eating them all, and thus this forces him to distribute the surplus to his servants. And there are times that our market is led by the invisible hand. For instance, in the financial arena, bankers are aware that offering too much loans with excessive risks could force the bank to close its doors, as losses of confidence can immediately prompt panicky withdrawals. As a result, this restricted the ease of high-risk loans, during the late nineteenth century.

Nevertheless, there is a common misconception that the pursuit of self-interest will always result in a group benefit. Because, most of the time, the invisible hand is inadequate for an economy to be sustainable. This is evident—five years ago—in the global financial crisis. Prior to the crisis sub-prime mortgages are being lent recklessly. As long as the house prices continue to steepen, mortgage brokers, lenders and banks ignore the high risk of defaults, because these mortgages were bought in dominoes—from mortgage lenders to banks, as CDOs, and to investors as hedge funds, for example. And as expected, thousands of defaults arose, and bankruptcy, and thus bailouts ensued—the bubble busted.

So the enforcement of legislations is needed, after all—as Joseph Stiglitz has claimed “the reason that the invisible hand often seems invisible is that it is often not there. 

New Ideas from dead economists

I would say Buchholz makes his book ‘New Ideas from Dead Economist’ quite a challenge to read due to it’s slow pace and lack of concision. However, I do have to bear in mind that at the time of it’s publication, in 1989, there was no Wikipedia and that this book was able to compile a lot of history behind economics into it. Buccholz includes many of the greatest economists into his publication, but also includes a topic which I take an interest in which is behavioral economics.

With Economics being a subject that relies on rational thinking (most of the time), I enjoyed reading about the fusion of economics principles with psychological methods. As this section in the book was only brief, one of the few experiment examples Buchholz used stuck in mind. In a nutshell, there is a sudden outbreak of a disease, and two programs are devised to combat it. Program A states it can save 200 people, whereas program B has one third of a chance of saving 600 people, and two thirds of not saving any of the 600. Not surprisingly, 72% of the people picked program A because people like certainty over chances.

I had the privilege of attending a lecture by Joe Gladstone, a PhD student in behavioral economics, when I was in the UK, and learned how he had summarised human behavior in an amusing way. Collectively, governments and economists assume that we, as homo-sapiens, are homo-economicus (economical humans), and that we are rational, self-interested and have perfect decision making. But let’s face it, in reality we are closer ‘homer-sapiens’ (of The Simpsons) because we are mentally lazy, impulsive and emotional, rendering many economical theories redundant. Referring back to the example in ‘New Ideas from Dead Economists’, both programs of combating the disease statistically saved 200 people. It did not matter that maybe program A saved 200 out of 1000 people which would have made it less effective than program B, it just mattered that program A definitely saved the 200 people. Why? Because many of us are impulsive as aforementioned, and just like seeing results. Overall, though this book is sound economically, I would not recommend this to anyone who wants a light read. Since the read is mostly a historical journey, it does get slow at times.

Why do we buy?

“Buyology” by Martin Lindstorm investigates the reason behind consumer purchasing choices.

Lindstorm says that traditional advertisement that we see everywhere, e.g. billboards and commercials between TV shows, no longer work and are not worth the millions that companies spent at all. People like the idea that they are rational thinkers and like to believe that everything they do is based on reasons over emotions. However, Lindstorm’s findings from experiments that used brain scans from fMRI (functional Magnetic Resonance Imaging) and SST measuring electrical activity inside the brain points that we rarely have rational control over why we buy some products and not others: our brain subconsciously chooses for us.

A case study from the book that really blew my mind was about subliminal messaging.

“American Idol”, a very famous TV show, had 3 main sponsors: Ford, Coca Cola and Cingular (telephone service provider) and each of them had different product placement methods. Coke covered the show 60% of the time via subtle product placement, such as the contours of the judges’ sofas resembling a Coke bottle, bright red hallways that contestants walk down, or showing the judges drinking Coke during the course of the show. Cingular are mentioned each time callers call in to vote for their favourite contestant and Ford are the sponsoring brand features in ads during the break.

They found that most people, after having watched American Idol, without doubt, could remember Coke and Cingular the most. For Ford, subjects remembered less of the brand than before, which is probably due to the fact that people nowadays have become immune to normal advertisements. This gives us evidence that a product needs to be woven into the show as part of the ‘storyline’ for it to be remembered.

It made me think of how many subliminal adverts we might be unconsciously consuming everyday and why sometimes we buy something without knowing why after the purchase. It’s quite scary and amusing at the same time to know that marketing strategies have evolved as far as coming into our unconscious mind.

Angkarn Kalayanapong (1926-2012)

Renowned Thai poet Angkarn Kalayanapong passed away today in Bangkok at the age of 86.

Born in Nakhon Si Thammarat in 1926, Angkarn challenged traditional Thai poetic conventions in his groundbreaking poems. While initially criticized by the cultural and literary establishment, he was finally recognized as a leading voice in contemporary Thai poetics, and was honored as a National Artist (Literature Category) and won the S.E.A. Write Award for his collection “The Poet’s Pledge.” Thailand has lost an important and challenging voice today.

If you’d like to read more about his unique poetry, spend some time reading this article, “The Mythopoetics of Angkarn Kalyanapong” published in the journal Explorations in Southeast Asian Studies in 2004. 


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