The baseline problem revisited: Iraq

Great Debates
1

A little while ago we had an interesting thread here: Libertarianism: the baseline problem. I thought it would be good to revisit this issue after reading this part of Steven Landsburg’s Slate article The Case for Looting:

Here it seems to me, we have a practical example of the “baseline problem”. Now is clearly a time when the property relations in Iraq are going to be remade. How should they be so remade?

The original thread was about libertarians and their response to the issue. Whilst I obviously welcome their views, this is a question for everyone.

A brief reiteration of the issue as I see it: The start of that Landsburg paragraph reads

But it seems to me that to some extent the rest of the paragraph (the earlier quote) could be said to apply to anywhere. Many of today’s rich in quite free societies have built their wealth from foundations laid during times of injustice. If there has been no redistribution, why the hell should one “recognize the fundamental human right to retain one’s earnings”? It’s a tricky issue, but Landsburg does rather seem to dodge it. And it it surely applies to Western economies.

My opening bid on the question - Suppose two things for the sake of argument: 1. That those behind the dictatorial regime are found and imprisoned, their property confiscated; 2. That we can forget about any regional strategic implications of the remaking of Iraq’s distribution of wealth. The (new) initial distribution of wealth should be equal. All property, including land, any former government businesses and oil reserves, should be apportioned equally amongst all citizens. Some of this could be achieved by the issuing of shares (oil, government businesses), some (land) by government auction. I don’t see a case for any other distribution.

But of course, we can’t forget 2. What will happen in Iraq is that consideration of what’s going to provide stability will influence the distribution of property in the new Iraq. Even when an opportunity to make a new start arises, the influence of the current distribution of power is going to be crucial in determining who gets what. And, whatever form of capitalism takes hold, this initial distribution is going to influence (notice I don’t say determine) who has wealth and opportunities in 20 or 30 or 100 years’ time. This, for me, is why an absolute reliance on property rights can never be acceptable: the moral primacy of a distribution generated by freely contracting individuals depends on the justice of the initial distribution - but that distribution is never in practice free of the shadow of the past.

2

An American military governor putting in place a fundamental wealth equilisation policy based on good socialist principals? Nah.

“That those behind the dictatorial regime are found and imprisoned, their property confiscated”. But where do you draw the line?

The lesser players in the regime, in fact all but the very top policy makers, administrators and operatives e.g. police, fire, health, bureaucrats, military, security, trade, finance, diplomats etc. etc will need to be retained. The people with the expertise to run the public infastructure and institutions of Iraq are (currently) exclusively appointments of the previous regime. You simply can’t put the average Joe or Abdhul from the street in charge of the Ministry of Oil.

If you like it’s a minimalist, McGarvie model republican change i.e change the head of state and leave the rest of the institutions alone to evolve in their own way and time.

If the reconstruction of Iraq sees the level of inequity reduced (and that may be in terms services like health, education, security, justice, not neccesarily wealth) and that there is a path to self improvement based on a merit rather than patrony based on hagiocracy, theocracy or membership of the Ba’ath party, that will be good.

Of course these are quaintly Western philosophies that may be an anathaema to the locals, who may well prefer something based on either the Saudi or Iranian models … and if that is their wish, we should respect that.

3

I agree, and I’m not sure they should in the circumstances. But I’m still interested in the question: how should property relations be remade? Putting aside cynicism for the minute, what should be done?

Good points. I accept that you are going to want to employ these people in relatively high paying jobs, but why should they keep their wealth? If we accept that this IS a big break with the past and that there will be a redistribution of wealth, why not apply some ethical standard rather than simply accepting whatever gets thrown up?

But in a way, I guess that supports what I said earlier: that the new initial distribution of wealth is not going to be ethically justifiable; that that distribution is going to have lasting effects on opportunities; and that “the fundamental human right to retain one’s earnings” is a nonsense.

4

Interesting questions.

First, I don’t believe that we need to look to “socialist principals” to be concerned regarding wealth distribution and to think about addressing inequalities.

I believe Hawthorne can verify that there is a fine set of perfectly capitalist economic literature, and not even particalarly ‘left’ at that, that suggests excessive inequalities correlate with lower growth. Where the cause and effect is, I am not sure, although I have read informed speculation positing lower growth is probably often the resultant more than the cause.

Second, I believe this question is of serious concern in regards to establishing a framework of legitimacy for a new private sector driven economy.

One can not simply assume that such will, ipso facto, have legitimacy. Iraq has been run as a quasi-socialist state for some 50-60 years, depending on how we want to slice the cake. Regardless of regime legitimacy, as in the FSU and former East Bloc states, ideas of property and the like will have been influenced by this experience. People expect certain things from the State, to wean them away from the more economically inappropriate requires a framework that many buy into.

Further, given the problems in the region, lack of access to ** oppurtunity ** is one of the key driving forces for discontent in the region, as well as a stultifiying force. Rentier behaviour rather than entreprenurial behaviour is what most economic systems in the region encourage, for a wide variety of reasons.

If we want a successful more or less democratic state, we need to create the socio-economic conditions for it. That means helping create the conditions in which opportunity is actually available – socially and economically. These are not to be assumed, I can assure you given both a close reading of the literature, and my direct personal experience.

It seems to me that to help the Iraqis survive the onslaught of change, a program of grants and finance to help them adjust and compete is absolutely necessary to help stave off (a) nationalist resentment of the flow of foreigners, Arab or otherwise, snapping up distressed assets (I may be one of them (b) help a civil society emerge out of the ashes. Of course, this requires in part an appropriate legal framework. but beyond that, it requires assistance to people who have never had these kinds of opps presented and will be in large part paralyzed by the shock of change.

I am personally involved in some planning efforts to raise something like a venture capital fund for Iraq (this is is looking at something about 2-3 years down the road, optimistically) which would be one avenue, but there needs to be some distributive function to help out on this, some non-market driven assistance to get people up to the level where they can compete.

Otherwise, and I have said it many times, we will see Egypt on the Euphrates.

5

I don’t know about growth, but from what I understand the poorest countries tend to be those with the most inequality. People may be surprised to know that many poor countries have much more unequal distributions of wealth and income than countries like Australia and the US. I should scurry off and find some statistics to back this up.

My own view is that there is probably a pretty wide range of income distributions where there is little or no impact on overall economic performance, and that the seeming correlation between income inequality and poor performance is explained by the lack of the rule of law. (But I am not a development economist, so I don’t know the literature very well. My current thinking is heavily influenced by the paper I linked to in the big-arse Collounsbury thread.)

But there are sound instrumental reasons for being interested in the new initial distribution of wealth and income in Iraq. And equally there are sound instrumental reasons for - once an order has been established - taking property rights seriously. Those are interesting questions, but not really the questions I had in mind when I started this thread. They were: what new distribution might be considered just by an ethical observer? and given that some distribution will be established, will an absolute respect for property rights (as advocated by many libertarians) be ethically defensible?

6

Well, what is an ethical observer?

Someone unconnected with the situation?

Someone in the situation?

I’m not sure how one arrives at knowledge of what point of view is adequate.

From a purely instrumental point of view, however, I find any absolute adherence to property relations to be bankrupt – as any absolute adherence to any abstraction would be.

Certainly a respect for property rights and a degree of continuity and stability will serve Iraq (or any country) better in the long run than excessive engineering of distribution.

At the same time, any economic system is dynamic and when trying to get the thing up and running, from a state where property rights were of somewhat theoretical value, well that is going to take some tweaking, insofar as I can easily imagine situations where the initial outcome is too unbalanced to be sustainable in the long run or medium term. Obtaining long term legitimacy of property rights depends on enough stake holders in the process buying into the system. If the initial distribution is too far out of whack, one undoes one’s own goals.

(BTW I am fairly certain I recall a paper on the WB website examing GINI correlation with growth)

7

You probably should find some stats because I was under the impression that there was a greater inequality of wealth here in the USA but since we have a much larger “pie”, the bottom of our barrel still has a much higher standard of living than their Iraqi equivalent. Intuitively it makes sense, after all, how many Iraqi millionares/billionares are there as a % of the population?

I am curious to know which of us is right.
I’m thinking that I agree with Collounsbury that existing property rights for regular citizens should be respected (whatever system of property Iraqis use). Politically, I think it would be a disaster to overthrow one tyrant and replace it with a tyrany of well-meaning social engineering.

Personally, I feel that the wealth from Sadaams regime would be better spent rebuilding the countries schools, roads, and other infrastructure than split 10 million ways and sent out as a check to each Iraqi citizen.

8

msmith I believe that hawthorne is both right and wrong: In general industrialized countries do have a more equal distribution of wealth than third world countries.

But, the United States is one of the noteable exceptions to this rule; it’s distrution of wealth is comparable to that of many third world countries. An aquaintance who holds a senior position in the swedish foreign aid told me that the US is somewhere in between India and China in this respect.
(Not 100% this is my recollection)

9

Possibly neither. www.worldbank.org/poverty/inequal/econ/distrib.htm

If I may, I’m a bit dissapointed to hear this shtick from Landsburg: “Turning now to the moral issue, most civilized people (my ex-wife and her attorney excluded) instinctively recognize the fundamental human right to retain one’s earnings, and therefore react with abhorrence to unrestrained thievery (and, if they are intellectually consistent, to marital property laws and the taxation of income).”

The notion that “fundamental right” means “cannot be abridged under any circumstance” seems to be rather spurious. Rights to speech, assembly, petition, et hoc genus omne are all subject to limitations, yet some seem to think that their pocket books aren’t. In Marilyn vos Savant’s column of 30 Mar 2003, one such individual tried to draw her into that trap by asking the difference between taking another’s property by force and lobbying the gov’t. to do the same thing. She replies:

Personally, if I’m reading the OP correctly, I view asking (hard core) Libertarians the question as merely mental masturbation: Anyone who thinks that “fundamental” rights to property cannot be limited in some way is probably also the sort of person who thinks that markets can solve market failures, and that a market solution, competitive or not, is a sufficient condition for maximizing any acceptable social welfare function.

To me a root of the question is the collision of two fundamental rights and the dilemma of how to balance them. On the one hand, we have a right to property; on the other hand, we have the right to not be punished for our father’s crimes. To say that a child should live in poverty, with all the risks and lost opportunities that entails, because her father made some bad decisions seems to violate that second right in a most egregious way.

Like any good, I would think that the enjoyment of rights is subject to the sort of convexities that make mixing preferrable to taking all of one or all of another, but not both. The primacy of property rights contradicts that idea; it asserts lexicographic* preferences for rights, which seems unrealistic. I certainly don’t see why any policy should be based on it.

*Ha! There’s a word I don’t get to use often.

10

Well said. I’ve struggled to articulate this many times…You’ve captured my main objection to hardcore libertarianism.

11

" You probably should find some stats because I was under the impression that there was a greater inequality of wealth here in the USA but since we have a much larger “pie”, the bottom of our barrel still has a much higher standard of living than their Iraqi equivalent."

This is off the top of my head from general reading: no time to look up citations for you. As I understand it the mark of a underdeveloped or third world economy is a small group of wealthy, a mass of poor and a small middle class: i.e. high levels of inequality. European countries such as Germany, France and Sweden have a much larger middle class and much less difference between all levels: i.e. more equality. Countries that have shifted towards regressive taxation, and a neo-liberal model of capitalism overall (e.g., US, UK) have experienced shrinkages in the middle class, the super-enrichment of a small elite, and an enlarging mass of working poor: in other words, they have come to resemble the inequality of third-world countries. Russia also has this type of profile since its transition to an ultra-neo-liberal capitalist model.

12

Ok, some numbers. A few caveats: [ul][li] A single statistic is frequently used. The Gini coefficent (index). 0 is complete income equality, 1 (100) is complete inequality. It is an inadequate summary of a complex picture. [/li][li]Cross country comparisons are very difficult due to exchange rate/ price level problems and differering degrees of market goods in consumption baskets. That’s if you believe the statistics in the first place.[/li][li]It matters what you measure: wealth, market incomes, post-transfer market incomes, post-tax incomes, consumption.The data does not speak for itself in the social sciences, and economists disagree about most things.[/ul][/li]From http://www.worldbank.org/research/inequality/world%20income%20distribution/true%20world.pdf, this table:


                           1988     1993
Africa                     42.7     48.7
Asia                       55.9     61.8
Latin/Carib                57.1     55.6
E Europ/FSU                25.6     46.4
W Euro/N Am/Oceania        37.1     36.6

Some country Ginis and qunitile distribtutions (pdf). A few selected numbers:

Australia: Gini 35.2, top decile gets 25.4%.
Bolivia 58.9, top decile gets 45.7%.
Brazil 59.1, top decile gets 46.7%.
Canada 31.5 top decile gets 23.8%.
Central African Republic 61.3, top decile gets 47.7%.
Sierra Leone 62.9, top decile 43.6%, top quintile 63.4, bottom quintile 1.1% !
Sweden 25.0, top decile gets 20.1%
USA 40.8, top decile gets 30.5%.

The picture is mixed. There is a fair bit of variation amongst both rich and poor countries, more amongst poor. But the US is by no means the most unequal.

Some nice maps in this pdf, as well as some hints at the difficulties in choosing which measure and what to believe.

Taking a subtantially different tack, see this IMF Staff Paper. They conclude (amongst other things)

13

Well, that is not what I meant at all.

What I meant was that on one hand I agree establishing consistent property rights is important, and more so than trying too hard to rebalance things.

On the other hand, I also recognize that IRaq is in flux and legitimacy for the economic system must be won, as such a pragmatic combination of ‘social engineering’ – which I rather like to call by its less ideological name, “public policy” – and generalized respect for an emerging system of property rights is important.

In large part yes, however in effect you run into a distributional problem. Need for social stability to make rebuilding possible, with the maximum of private participation and above all capital, requires moves to make the populace feel they have a stake in the process. That, in my opinion, suggests some redisributive function is necessary.

14

How about starting a 20-30 year taxation system such as the following:

(A) - Start off with very high tax rates on assets (property, inheritance, collected goods from the past, plus any return on those assets such as rent, interest, etc.) and a very low tax rate on income from a job or a profession. Also introduce a small additional tax for those individuals that have had a good training/education in the past, that gives them an earning advantage over non-trained or uneducated individuals.

(B) - Use the taxes from (A) above to finance the training / education for the underprivileged (with little or no inherited property or no past opportunities for training / education).

© - Gradually reduce the tax rates, over 20-30 years, for those in group (A) and increase income tax rates for those in group (B).

Could the above be a workable model?

15

Perhaps, but presumes a degree of collection efficiency unparalleled in the region.

Still, no matter we float, I am sure I can think of problems. So, what overcomes, the problems (or minimizes?)

I shall try not to have too much fun this weekend such that I actually sit down and write something.

That’s it, off for the weekend.