# The second "D"



## a_majoor (22 Dec 2006)

Defence, Development and Diplomacy are the "Three D" package to win insurgencies, but a lot of the second "D" is pouring development monies into the nation through government development agencies and NGO's, which may not have enduring effects. This article may point out a key to the long term development of stable institutions and political structures:

http://www.canada.com/nationalpost/story.html?id=c36ac282-6c85-46a5-8bec-7211a2bebac4



> *The economics of the rise of Ahmadinejad *
> 
> REUVEN BRENNER, Financial Post
> Published: Wednesday, December 20, 2006
> ...



Of course, if it is difficult  to build schools, roads and wells when something like the ACM is active, then building capital markets will be doubly so, but the potential rewards make this worth persuing


----------



## Kirkhill (22 Dec 2006)

http://www.msnbc.msn.com/id/16241340/site/newsweek/

I am not sure you are right in your observation that building capital markets is difficult in the face of the ACM.  The Iraq experience would seem to be different.  Almost the first institution stood up in Iraq was stock market and while the Police, Army and Government constantly get re-org'd the stock market trundles on.

Wars have always presented great opportunities to make money: interpreters, road builders, groundskeepers, security, provisioners..... Even if the distribution is inequitable the money eventually gets into the economy.  Even the most rapacious, greedy, miserly miscreant only has so many hours in the day and needs to buy help.  Those people need motorbikes and trucks and telephones and stuff.  Money gets spent.

In fact, if the sole objective is to put money into the economy, and deprive the warlords of their hold on society, what would happen if instead of dropping leaflets from C130s we just dropped dollar bills (or Afghanis) - make the locals "rich" enough that they could pay out the drug lords, buy their own ammunition and plows and maybe a warm blanket or two?


----------



## DBA (22 Dec 2006)

Kirkhill said:
			
		

> In fact, if the sole objective is to put money into the economy, and deprive the warlords of their hold on society, what would happen if instead of dropping leaflets from C130s we just dropped dollar bills (or Afghanis) - make the locals "rich" enough that they could pay out the drug lords, buy their own ammunition and plows and maybe a warm blanket or two?



It's the old "Give a man a fish and he will eat for a day. Teach a man to fish and he will eat for a lifetime." line. The first alleviates a symptom, hunger. The second the problem of a man who isn't able to acquire enough food for himself and his family. Both have the sole objective of putting fish on the plate but have very different long term outcomes. The same goes for cash to provide consumeables vs development.


----------



## Kirkhill (22 Dec 2006)

Agreed DBA - and the suggestion was made half in jest.

However sometimes the patient is so weak he just needs to be given the fish so that he can stay awake long enough for the fishing lessons.  In Afghanistan's case perhaps there is an argument that the patient is weak enough to require being spoon-fed "Ensure".  Once the individual is up and around then you can start on the fishing lessons.  Although I wouldn't be at all surprised to find out that these folks already knew how to fish.  There just wasn't much water available.


----------



## a_majoor (22 Dec 2006)

As an economist, I would strongly discourage showering dollar bills from aircraft, since this is a simple demonstration of an inflationary policy (inflation is always a monetary problem; too much money chasing too many goods, thus bidding up the prices).

Creation of capital markets is "easy" in one sense, as the example of Iraq has shown, creating strong and deep institutional foundations is quite another. During the "Banana Wars", the USMC literally took over running Haiti and the Dominican Republic. They raised and trained a police force, ran the customs office to generate government revenues, built roads, hospitals, schools etc.; very much like we are doing today. Since this was in the aftermath of Wilsonian idealism, the general idea was the locals would learn from example and be able to take over when the Marines left.

Since the locals did not absorb the concepts of "Rule of Law", property rights and equality before the law (and the Marines had never taught that, nor would it have occured to them to do so), the various nations the Marines had occupied during the Bananna Wars slid into the squalor and chaos that we see today. The local elites were simply interested in plundering the institutions the Marines had created, and the rest of the population had no idea how to use the institutions that were left to them.

This is the real reason that nation building takes generations, the ingrained attitudes of the local elites and eldars need to be changed, and the underlying culture needs to absorb ideas like Rule of Law, equality before the law, property rights etc. to function as a stable and prosperous nation. On the other hand, since these complex ideas and institutions are quite fragile (inept government regulations triggered the Great Depression and almost destroyed capital markets in the US and UK, for example), running and maintaining a nation may be akin to raising exotic flowers in a greenhouse, the gardeners need to be constantly at work to keep their plants healthy and alive.


----------



## Kirkhill (22 Dec 2006)

Next question then Arthur:

Is the gardener an entrepreneur, an employee or a hobbyist?  

What does the gardener gain?  And do the plants appreciate the effort?  How about the jealous neighbours?


----------



## a_majoor (22 Dec 2006)

Kirkhill said:
			
		

> Next question then Arthur:
> 
> Is the gardener an entrepreneur, an employee or a hobbyist?
> 
> What does the gardener gain?  And do the plants appreciate the effort?  How about the jealous neighbours?



I hate it when you make me explain my analogies >

Gardeners= the society at large, although the bureaucrats, police officers, judges etc. could be considered the senior or head gardeners.
Plants= the institutions. These are impersonal, like plants they can be vigorous or they can wither and die. If they are used for other purposes or their founding rationals expire, they become weeds
Jealous neighbours= that's where we come in!


----------



## TangoTwoBravo (22 Dec 2006)

I'm not sure if I completly accept the capital market determinism model offered in the article.  One party states may well not have capital markets, but I'm not sure that one can prove that a lack of capital markets causes one-party states, or that a free capital market prevents a one-party system.  People are more than economic animals.  They live within familial, cultural, societal and political realms that influence and shape their behaviour.  

The reasons for the rise of Hitler and the Nazis are varied, as are the reasons for the rise of the current Iranian regime.  Looking at the former, the world-wide depression certainly helped, but I think that the conditions produced by the end of WWI, particularly the Treaty of Versailles laid the groundwork for Hitler's rise.  I see the wars of 1870 to 1945 in Europe as the wars fought to determine Germany's place in Europe vis a vis the previous power structure (Britain and France), not as a clash between economic systems. 

All that being said, I would agree that a free market and democracy are linked to some extent.  One could argue that the relativley free flow of wealth fostered the growth of the middle class in Britain and America in the 18/19th centuries.  The new middle class then clamoured for more power and as a result democracy then grew in terms of powers and franchise.  Still, I'm not sure if free markets cause democracy.  Democracy as we know it formed in the protected environment of Great Britain, with some of the fundamental groundwork laid before anybody knew what a free market was.


----------



## Edward Campbell (22 Dec 2006)

See Niall Ferguson's *The War of the World* (London, 2006), Chapter 6, "The Plan."  He goes on at some length, being Ferguson, about the economic impact of the Great Depression on Germany and America and he compares and contrasts the approaches of Roosevelt and Hitler - including an eerie comparison of a Roosevelt speech which could have been given, at almost the same time, by Hitler.

I agree that economic policy, in and of itself, does not drive national socio-political choices, but it sure helps.  Look at Singapore.  A clear, sound economic _idea_ - let's make the best possible use of our only resource, our people - produced a an aggressively entrepreneurial but socially conservative welfare state style socio-political outcome which suits the _temperament_ of the ethnic Chinese majority and the needs of the minorities.  Equally, look at the Weimar Republic: unsound economic policies (deciding not to default on the idiotic reparations payments) produced socio-political disaster.

(John Maynard Keynes asserted, back before Hitler arrived on the scene that a ruthless dictator could undo the damages caused by French greed and stupidity, British weariness and American confusion in Paris in 1919.  Hitler proved him right, as an examination of the German economy 1934/39 demonstrates.)


----------



## Kirkhill (22 Dec 2006)

a_majoor said:
			
		

> I hate it when you make me explain my analogies >
> 
> Gardeners= the society at large, although the bureaucrats, police officers, judges etc. could be considered the senior or head gardeners.
> Plants= the institutions. These are impersonal, like plants they can be vigorous or they can wither and die. If they are used for other purposes or their founding rationals expire, they become weeds
> Jealous neighbours= that's where we come in!



But I so enjoy making you work mate. ;D

No, what I was getting at, is that neither gardens nor gardeners spring from the earth spontaneously, both require training ( I am going to take a moment just now and pause to admire that last line  ;D ).
More seriously, I agree with the gardening analogy but my question pertains to the motivation of the gardener, a necessary ingredient in nurturing a garden.  What is there of value, enlightened self-interest or otherwise, that would encourage a gardener to invest themselves in a wild patch of weeds so as to create a garden based on the weeds that are there?  We are assuming we are not just going to spray round-up and turn the ground over.

Is the gardener doing it because he enjoys doing it?  You said, and I agree, that it is the work of generations.  Will the gardener's children and great-great-grandchildren enjoy doing it for the intrinsic reward?
Or is he doing it as an entrepreneur - accepting the risk but expecting a substantial payout?
Or is he doing it as an employee - an employee of the plants - who pay him in taxes and manpower and trade for teaching them how to be better plants?

I can't speak to the rest of the world, but I know enough about British History to know that Westminster didn't arise from the actions of a gardener applied over generations - and certainly not for altruistic reasons.  Westminster is the sum total of blood and compromises.  There were some that no doubt saw themselves as gardeners, Oliver Cromwell comes to mind, but as memory serves the weeds weren't entirely enthusiastic about his endeavours.  Equally the folks in India, fans of Westminster as they now seem to be, weren't particularly thrilled with either the gardener or the training at the time.

Is that enough fertilizer to be going on with?


----------



## a_majoor (22 Dec 2006)

Several questions going here.

The gardeners are doing it as an entrepreneur - accepting the risk but expecting a substantial payout for themselves and their families and decendents. A secure and stable environment where they can tend their plots and enjoy the harvest is the best way of extending this analogy.

Is this argument economic determinism? I don't think so. I believe that once people in a society decide that they want to become "gardeners" in the sense of my analogy, they will work towards building institutions that support these activities. This is a long, drawn out and difficult task, since there are plenty of people who woudl rather plunder the "crop", or want to claim seigniorage over you "plot" and extract the results of your work for their ends. Even the ancient Greeks during the Classical period seemed to have understood this, as well as the Res Publica Roma; economic life in Europe boomed in the Middle Ages as new sources of finance besides nobles, Kings and the Church became available (and eventually outstripped the resources of these groups). As the model suggests, whenever alternative sources of capital dried up, so too did economic and political freedoms.

The essential link seems to be that people are able to access capital and resources independently from the government. You are beholden to whoever or whatever lends you the capital (try not paying a credit card bill or mortgage payment and see what happens), so if there is only *one* venue to receive capital and resources from, that institution has a vast amount of power.

Just as the Founding fathers of America separated political power to prevent overmuch concentration in the hands of any one person or group, so creating and promoting the growth of multiple and independent sources of capital also prevents the growth of centralized and concentrated power. Socialistic movements and governments understand this, which is why extracting high taxes and placing regulatory barriers to free markets and the free movement of capital are important planks for their policies (assuming they don't confiscate everything outright); when the only place to go for capital resources is the government, they have you over a barrel.


----------



## TangoTwoBravo (23 Dec 2006)

I read the article as being economic determinism because it seems to link the rise of Hitler and the current regime in Iran to capital markets (or lack thereof).  Perhaps a more accurate term would be "market determinism."  I'm not denying a linkage between democracy and capitalism, but I see other factors at play in the two examples given.


----------

