Friday, December 12, 2008


Held to account

Which big organisations and companies are accountable?

THE International Olympic Committee is the least accountable global organisation according to a survey published on Wednesday December 10th by One World Trust, a British think-tank. The study ranks 30 companies, inter-governmental organisations, and voluntary groups and charities, according to an index based on criteria such as transparency, participation with outsiders and how complaints are dealt with. The IOC was found to be the least transparent in its workings, while the International Atomic Energy Agency and Care International were found to be worst for setting out ways to deal with external complaints or whistle-blowing. Businesses are most likely to respond to complaints and banks score best for transparency. Charities and aid agencies are most likely to involve outsiders in decision-making.

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Corruption in America

The Chicago way

ROD BLAGOJEVICH has the hair of a Kennedy and the tongue of a crook. When he first arrived on the political scene in Illinois, many thought he was a rising star. Some even murmured that the Democrat might climb as high as the White House. Mr Blagojevich, young and handsome, was elected as a congressman in 1996 and then as governor in 2002. He took office vowing to bring ethics reform to Illinois.
How things have changed. “Fire those fuckers”, said the governor about his critics at the Chicago Tribune. “If they don’t perform, fuck ‘em”, he said of an effort to squeeze contributions from a state contractor. Barack Obama’s Senate seat, Mr Blagojevich explained, “is a fucking valuable thing, you don’t just give it away for nothing.” These were some of the pearls of eloquence included in a 76-page complaint against Mr Blagojevich. At about 6am on Tuesday December 9th an FBI agent telephoned the governor at his home in Chicago to say that he was about to be arrested. Mr Blagojevich asked if the call was a joke. He denies any wrongdoing.

The arrest may have been a surprise to the governor, but many others were expecting it. Investigations of his administration’s hiring, contracting and fundraising stretch back to 2003. (His re-election in 2006 had much to do with the ineptitude of state Republicans.) Thirteen people had been indicted or convicted in the debacle, among them Tony Rezko, a developer and fundraiser who was once a friend of Mr Obama. Patrick Fitzgerald, the tireless prosecutor for Illinois’s northern district, shows no signs of slowing down.
Few, however, expected the prosecutor to present such a feast of bad behaviour. The most stunning charge is that Mr Blagojevich, who has the power to appoint Mr Obama’s successor in the Senate, wanted to sell the seat to the highest bidder. But almost equally shocking are the alleged efforts to fire his critics at the Tribune and to withhold money from a children’s hospital unless its executive contributed to his campaign. If convicted of wrongdoing in these and other schemes, Mr Blagojevich would have the honour of being the most despicable politician in Illinois’s recent history. This is no small feat in a state where three of the past seven governors have gone to jail. Though he may have been ambitious, however, he was not particularly clever. His conversations about Mr Obama’s seat, for example, came at a time when everyone knew federal investigators were watching him closely.
It is unclear whether or when Mr Blagojevich will resign. The leaders of the state Senate and House say that they will vote next week to strip the governor of his appointment powers, and that a special election should be held to fill the Senate seat. Mr Obama himself should be anxious that the mess will become, at the least, a distraction. David Axelrod, his chief campaign strategist who will be a close presidential adviser, has reversed a statement made in November suggesting that Mr Obama had spoken to the Illinois governor about the Senate vacancy.
Illinoisans, meanwhile, have been jerked from the hazy bliss that blanketed the state since Mr Obama’s election. They have long suffered from the state’s penchant for corruption. Mr Fitzgerald, one indictment at a time, has been pushing Illinois in the right direction, but his exposure of Mr Blagojevich represents a new low.
Beyond Illinois, too, Democrats have reason to be worried. William Jefferson, an indicted Louisiana congressman, lost a special election on Sunday—he is best known for stashing $90,000 in his freezer. And in New York Charles Rangel, chairman of the House Ways and Means committee, continues to be accused of scandal. The most recent matter involves suggestions that a bill was dropped in exchange for a donation to a pet project. Democrats have seized power from the Republicans. They are in danger of seizing the mantle of corruption too.


Primary education

In praise of facts

“NOW, what I want is, Facts. Teach these boys and girls nothing but Facts. Facts alone are wanted in life.” How horrible for the pupils at Professor Gradgrind’s school; Charles Dickens pulled out all the grim stops in describing it. No one today really thinks that school, especially in the early years, should consist of nothing but dreary rote learning.
But children do love learning real things—why trees have leaves, how two minuses make a plus, the number of wives’ heads Henry VIII removed. Only if they begin to build up a core of knowledge can they develop the habits of mental discipline that must last them a lifetime. You cannot look up on Google something you do not know exists; and the ability to hold facts in your head is a prerequisite for many careers—the law, say, or engineering. It is not enough in primary school to learn about learning; children need to learn actual stuff.
So it is a particular disappointment that the interim version of the biggest review of British primary schooling in decades nudges the country a little further down its path toward factfree education (see article). The existing curriculum is not without its faults: repeatedly re-engineered since it was set in place 20 years ago, it is now cluttered and prescriptive. And Sir Jim Rose, once Britain’s chief inspector of primary schools, was dealt some marked cards for his review: computer skills had to be ranked alongside literacy and numeracy (though employers complain not that young job-seekers are clueless online but that they are illiterate); room had to be made to teach a modern foreign language (thank heavens); and a gaggle of personal-development goals (learning not to set fire to your friends or trash the classroom) were to be emphasised.
The report suggests that everything be mashed into six “learning areas”. The titles alone appal. History will be part of “human, social and environmental understanding”, where it will compete for airtime with geography and, no doubt, global warming (is it any wonder that Gordon Brown has to scrabble about for a recognisable definition of national identity?). Britain’s increasingly fat children will presumably cut back what limited running around the playground they do now and sit, rapt, through lessons in “understanding physical health and well-being” (rumoured to include “happiness” lessons too).
Sad but true
Sir Jim is no fool, and he talks the talk better than most. There is to be “challenging” subject teaching as well as “equally challenging” cross-curricular study, the report insists; nothing will be lost. This is disingenuous. Maths looks safe; and reading and writing reasonably so (although English has to share its “understanding” area with other languages). But other hard, fact-filled subjects—history, geography and so on—will be compressed to make room for the sloppy, politically correct mush.
So, children, here are some crunchy facts. Spending on education has more than doubled in a decade, but standards have stalled as New Labour has conspired with its friends in the teachers’ unions to dumb down exams and meet performance targets. One in five pupils still leaves primary school unable to read and write effectively. Britain is sliding down the world’s literacy league tables (it does better at maths, which thankfully remains ringfenced). You cannot teach children everything. But that is no excuse for teaching them nothing much at all.


Thursday, December 4, 2008

Barack Obama's Economic Team

Off to work they go

Barack Obama has stacked his cabinet with clever economists, but can they work
together? And what will they do?

WHEN The Economist asked academic economists in September which presidential candidate would pick the better economic team, a huge majority said Barack Obama. He has not disappointed them. The team he unveiled this past week is studded with stars of the profession.
Mr Obama’s policies may not be any more successful at combating the financial crisis and recession than those of George Bush. But it does seem safe to say that economics will play a bigger part in the formation of those policies. Three of the first four members of the team to be named are well-regarded PhD-holding economists and the fourth, Tim Geithner, the new treasury secretary, is a respected central banker (he heads the Federal Reserve Bank of New York). Only one of the four people they will replace shares a comparable background (see chart).

They are not just any economists but among the best. “Their IQs are off the chart,” gushes a former colleague of some of them. Henry Kissinger supposedly once said every president should give Larry Summers an office in the White House. On November 24th Mr Obama did. As director of his National Economic Council (NEC), Mr Summers “will be by my side, playing the critical role of co-ordinating my administration’s economic policy”.
It is a striking contrast with the outgoing administration, in which economists never had much clout. Consider the Office of Management and Budget director, who as overseer of $3 trillion in federal spending plays a pivotal role in setting economic priorities. Mr Bush has had four: one was a pharmaceuticals executive, one did government relations for an investment bank, and two were congressmen. All four trained as lawyers. Mr Obama’s nominee, Peter Orszag, the outgoing director of the non-partisan Congressional Budget Office, is a professional economist known for such page-turners as “Saving Social Security”, a 300-page tome boasting 37 pages of footnotes and eight appendices. Whether Mr Orszag will be tough enough with the red pencil, however, is something that his track-record does not tell us.

The team’s other striking feature is its centrism. Mr Summers is on the conservative wing of Democratic economists. As Mr Clinton’s treasury secretary he backed the law that in 1999 tore down barriers between commercial and investment banks and still backs it despite recent criticism. Christina Romer, an economic historian from Berkeley, has just published a paper with her husband David showing how raising taxes retards growth. Jason Furman, likely to be named as an aide to Mr Summers, outraged unions for his 2005 article, “Wal-Mart: A Progressive Success Story”. One hedge-fund manager who, before the election, was terrified Mr Obama would usher in “confiscatory” tax policies breathed a sigh of relief. “No Robert Reichs,” he said, a reference to the leftish adviser who was Mr Clinton’s labour secretary. “There’s no radicals in the whole cabinet that anyone can find.”
Mr Obama’s backers, in fact, can with some justification feel betrayed by the presence of so many figures from the Clinton regime: Mr Summers and Mr Geithner served at the Treasury then, and Mr Orszag was on the NEC. Moreover, many of them are protégés of Mr Clinton’s second treasury secretary, Robert Rubin, whose star has dimmed considerably as Citigroup, where he has been a senior executive since 1999, has lurched from crisis to catastrophe.
Still, if Mr Obama is going to emulate the economic record of any predecessors, Mr Clinton is not a bad one to pick. Hiring Mr Clinton’s team won’t bring back that era’s steady growth and low unemployment, but it does bring valuable experience of fighting financial crises. Mr Summers and Mr Geithner were deeply involved in dealing with the disasters that befell Mexico, East Asia, Russia and Latin America during that time. Mr Geithner has spent the past 15 months battling the current crisis, though so far with little success.
Their influence helps explain why Mr Obama wants a hefty fiscal stimulus to keep the economy from “falling into a deflationary spiral”. Mr Summers had prominently called for “significant, speedy and sustained” fiscal stimulus. Mr Obama says he has asked his team to come up with a two-year plan to raise employment by 2.5m more than would otherwise be the case. Reports suggest a price tag of $500 billion-$700 billion over two years. The stimulus could include both aid to states, funding for public infrastructure and early implementation of Mr Obama’s promised $1,000-per-family tax-credit. It may also include health-care aid for the poor and uninsured—a down payment on one of Mr Obama’s more costly promises.
Mr Obama’s people will also be more willing to deploy the $700 billion Troubled Asset Relief Programme to prop up the financial system; they may even seek to enlarge it, and pursue some formal powers for taking over failing financial institutions. Other issues they will have to tackle quickly include whether formally to guarantee the debts of the mortgage agencies, Fannie Mae and Freddie Mac; a moratorium on mortgage foreclosures; reform of bankruptcy law to permit judges to rewrite mortgage contracts; and reforming the financial regulatory system.
Though impressive enough on paper, it’s less clear how well Mr Obama’s picks will function as a team. The NEC director is traditionally the honest broker of the economic team’s ideas. Given his reputation as an intellectual bully, many wonder whether Mr Summers can play that role. “Larry clearly can’t do that, and it’s a waste of his talents, quite frankly,” says a former colleague. But that may sell Mr Summers short. More than anything else, he relishes a spirited debate with worthy adversaries. One of those is Mr Geithner, who first came to Mr Rubin’s attention by contradicting Mr Summers in a staff meeting. Mr Geithner once described the Rubin Treasury as “an open competition of ideas.” And Mr Summers will have no trouble standing up to Mr Obama’s skull-cracking chief of staff, Rahm Emanuel.
That said, too much competition of ideas can breed chaos, and Mr Obama may have increased the risk by creating yet another body. On November 26th he said Paul Volcker, a former Federal Reserve chairman, would head his new Economic Recovery Advisory Board and Austan Goolsbee, his longest-serving economic adviser, would be its staff director. The board seems to overlap with the three-member Council of Economic Advisers, which vets policy proposals for economic idiocy: Mr Goolsbee will also serve on that council. Might too many economists spoil the recovery?


The EU and China

The Summit of Discourtesy
Crisis or no crisis, China’s diplomatic priorities
SUMMITS are a dime a dozen these days. So it is tempting to shrug off the announcement on November 26th that China pulled out of an EU-China summit, at less than a week’s notice. But China’s high-profile snub—aimed at President Nicolas Sarkozy of France, who was to be the host on the European Union side—cannot be dismissed so easily.
Cancelling a meeting at such a high level is a rare breach of diplomatic manners. Mr Sarkozy has irked China by proposing to meet the Dalai Lama at a party in Poland for former winners of the Nobel peace prize on December 6th. Before then, he was due to play host to the Chinese prime minister, Wen Jiabao, in the French city of Lyon, in his capacity as holder of the rotating presidency of the EU. Some of the EU’s regular summits with China are very dull. This one had important things to discuss, such as joint action on tackling the global financial crisis. An official EU statement regretted the summit’s postponement, “particularly” at a time when the world situation calls for “very close co-operation”.
Mr Sarkozy seems singled out for special punishment. Both Angela Merkel of Germany and Gordon Brown of Britain have met the Dalai Lama in the recent past, without triggering such diplomatic fireworks. Mr Sarkozy, a mercurial chap, may not have prepared the ground with Beijing for his meeting with the Dalai Lama quite as diligently as did Ms Merkel and Mr Brown, diplomats suggest. Also, France and China have had some bruising spats this year: Mr Sarkozy criticised China’s handling of unrest in Tibet; the Olympic-torch relay was disrupted by protests in Paris (as in London); Mr Sarkozy hinted he might stay away from the opening of the Beijing Olympics unless China started talks with the Dalai Lama. Reprisals followed, notably an apparently temporary tourism boycott of France by China.
But other things are in motion. Recently the French, who will surrender the EU presidency at the end of December, unexpectedly put out feelers to see if other EU countries wanted to move ahead with a long-delayed EU code of conduct on arms sales to China. That code of conduct has long been presented by the French as the key to a much bigger prize for China: the scrapping of an EU embargo on arms sales to China, dating back to the 1989 Tiananmen massacre. The French, it is said, found little enthusiasm for movement on the arms-for-China dossier. America dislikes any idea of EU arms helping China modernise its army, since American troops might one day be on the wrong end of such lethal toys, in a fight over Taiwan. European leaders are not about to annoy the new President Obama, just to please China.


Wednesday, October 15, 2008

Californias Budget

No Money to pay Bills
The state’s finances are worsening by the day
TWO weeks ago Arnold Schwarzenegger, California’s governor, signed a state budget that was a record 85 days late. Much cajoling and bullying was required to get it to his desk. At one point the governor threatened to pay state bureaucrats the minimum wage; at another he promised to veto every bill he saw. Few like the end result, which involves spending cuts and a good deal of what John Chiang, the state controller, described as “Enron-style accounting tricks”. And yet it became clear this week that the budget is hopelessly optimistic and will almost certainly have to be renegotiated.
The world’s eighth biggest economy has two problems, both stemming from the economic downturn. First, it is finding it hard to raise enough money to pay the bills. Under normal circumstances the state would sell $7 billion in bonds to tide it through until April, when income taxes flood in. Thanks in part to the delayed budget, the state has been forced to go to the bond markets at a time when investors are wary of everything but Treasury notes.
This obstacle ought to be cleared by the end of the month, when the state would run out of money. Encouragingly, Massachusetts managed to sell $750m-worth of bonds on October 8th. California’s Treasury plans to go to market next week with a slimmed-down $4 billion bond sale. If the credit markets gum up even more than at present, the state may seek relief from the Federal Reserve or from its enormous public-employee pension funds. With the immediate problem out of the way, though, a bigger one will loom into view.
California’s revenues have already dropped below even the pessimistic estimates on which the budget was based. Mr Chiang announced this week that sales-tax receipts in the third quarter were 9% below the May estimate, whereas corporate taxes were 16% lower. The prognosis for income-tax receipts, which account for more than half of all revenue to the state Treasury, is scarcely better. California’s tax regime is highly progressive. The state depends heavily on the rich, particularly the stock-owning Silicon Valley rich. Unfortunately, shares in technology companies have tumbled along with others.
By the end of December, an estimated $3 billion must be found to plug the hole. Sacramento is the last place in America one would want to look for such a sum. Along with just two other states—Arkansas and Rhode Island—California requires a super-majority vote to pass a budget. Yet getting two-thirds of legislators to agree is exceptionally difficult. Thanks in part to ruthless gerrymandering, state politicians are sharply divided between tax-loathing Republicans and public services-loving Democrats.
The Republicans, who make up less than half but more than a third of both the Assembly and the Senate, resisted any tax raises this summer and will probably do so again. If anything, says Roger Niello, a Republican legislator who sits on the budget committee, opinions are hardening as the economy stumbles. Poor Mr Schwarzenegger. His last two years in office may be little happier than the twilight era of Gray Davis, whom he replaced in 2003.