Posts Tagged ‘varieties of capitalism’

Shanghai Surprise

Tuesday, January 25th, 2011

Was at a philanthropy conference today, and one of the panels was about trends in the financial markets and their implications for foundation investment management. Unfortunately, the second part of that topic wasn’t really touched upon, but the three old white guys they had talking about the first part were pretty interesting. Half the conversation was about China: how long it’s going to rule the world, what that’ll be like. Turns out China has been the leading economic power in the world 17 of the last 20 centuries, so according to one guy, there’s a feeling of, “oh, we’re just reclaiming our rightful place.”

But the part that most caught my attention was the discussion of how China has managed to achieve spectacular economic growth in the last 30 years, not in spite of an authoritarian government, but because of it. I appreciated that one of the panelists pointed out that authoritarian governments may be good at the early stages of economic growth, but have a harder time with the more complex dynamics of the global economy. I’ve also seen the argument that China’s growth is not sustainable because the environmental shortcuts they’re taking will catch up with them sooner rather than later. I’d like to think these will be sufficient incentives to democratize, but I kind of doubt it.

I’ve written a fair amount on here about varieties of capitalism, and the types of innovation that different types of economies are good at. But I haven’t considered the Chinese model – particularly in the light of Gates and Buffett’s challenges bringing the Giving Pledge to China. Sounds like the start of another series…..

The missing leg of the stool

Thursday, December 16th, 2010

Continuing from yesterday: “varieties of capitalism” teaches us that there are different ways to organize a modern economy. The German model, what Hall and Soskice call a “coordinated market economy,” feature a relatively high level of coordination between firms, capital, and labor. They’re able to develop high-quality, labor-intensive goods because each takes a risk knowing that the other is taking a complementary risk.

In the U.S., the high-quality good of strong nonprofit evaluation/learning practices is not frequently produced, and one reason may be that that three-way coordination doesn’t happen. Nonprofits, foundations, and clients/the public aren’t coordinated in the same way. Foundations are rarely patient enough to support high-quality evaluation, nonprofits can’t count on stable financing to do it, and most crucially, nonprofit clients (and workers) don’t have clear incentives to participate in high-quality evaluation.

(I know that just earlier this week I distinguished between monitoring and evaluation. I’m using “evaluation” here to mean those practices of continual learning that allow a nonprofit to understand its environment, its product quality relative to that environment, and make adjustments to its resource allocations.)

There are some different ways to address this. One would be to make it easier for clients and nonprofit workers to gather and analyze evaluation data. This is improving the tools (SurveyMonkey has done this). That mitigates a disincentive, but doesn’t necessarily provide an incentive. Another way is to make evaluation data available to those from whom it’s gathered. This is improving the feedback loop (again, web-enabled tools, including SurveyMonkey, make this more easier). This provides somewhat of an incentive, because you see that your contributions actually result in something. But to have a really positive incentive, there has to be a connection to the person’s life and own interests. And that comes from a clear articulation of the nonprofit’s mission and a strong communication of its value added to its clients and workers. People need to be able to see why having a nonprofit that’s better able to learn is better able to serve them.

And that’s where I feel the real challenge is. It’s a missing piece in what could be a greater form of coordination among nonprofits, foundations, and the public to produce the kind of evaluation data that would make it easier for all involved to know that the work being done was having real impact.

Mercedes-Benz and nonprofit evaluation

Wednesday, December 15th, 2010

Last week I talked about intentionality and coordination, and expressed my dissatisfaction at market-based metaphors that would make it difficult for philanthropy to proceed in terms of “coordinated voluntary participation.”

Well, it turns out I’ve written a fair amount about coordination in the context of “varieties of capitalism,” the idea that the U.S. mode of doing business is not the only effective one. In addition to the “liberal market economies” of the U.S. and England, there are “coordinated market economies,” like Germany and Japan, where there is more intentional coordination, and the pieces of the employment/jobs system fit together more: vocational training fits with trade unions that have strong, long-term relationships with employers, who are willing to take risks on high-quality, labor-intensive products (think Mercedes-Benz) because they’ll have a supply of high-quality workers and relative labor peace.

I’ve also said that philanthropy and the nonprofit sector in the U.S. have a weird hybrid model of LME labor relations and CME finance. What would a fully-CME enclave, perhaps at a state level, look like in the U.S. nonprofit/philanthropic sector?

It would have to involve institutions working together to enable mutual risk-taking, on a path toward higher-quality, more labor-intensive outputs. Like, say, more attention to measuring results. What the German economy has to teach us is that all the parts need to fit together and assume some of the risk. (That means you, philanthropy). Firms (nonprofits) will produce higher-quality goods (better evaluation) if they can be assured that capital and labor will play nice; that is, that capital will be patient, and that labor will be high-quality enough to make high-quality goods. Foundations need to be patient with capital for evaluation, and be willing to pay for it, AND there need to be incentives for labor (in this case, the clients or nonprofit workers who provide the data for evaluation) to participate in this. German unions go along to get along because they’re more or less guaranteed job security and a steady flow of trained young people from the vocational system. That’s what’s missing in the U.S., the equivalent of the German-labor side of the equation. Where’s the incentive for nonprofit staff or clients to collaborate in the gathering of high-quality evaluation data? We haven’t made that connection (or rather, most orgs haven’t), and so the coordination breaks down.

What might those incentives look like? To be continued….

Stones in the river (conclusion…?)

Thursday, October 14th, 2010

A lot of my series of posts have been open-ended; I’ll try closing off a multi-post arc.

Continuing about the potential lessons for philanthropy from China’s economic development: Justin Lin, chief economist for the World Bank, says for developing countries, “markets are indispensable but government is also indispensable.”

If we accept that both governments and markets are indispensable for economic development, how do we think about the role of foundations – not just with respect to economic development, but more broadly?

Governments set the rules for markets, enforce property rights and security, and can through “industrial policy,” pick “winners” and provide support to bring them to scale.

Markets generate new ideas through competition. Some organizations succeed and others fail; a few are able to reach scale and most either stay at a small level or don’t survive.

Philanthropy can do two things, it can be the source of finance for nonprofit “firms” that operate within the third sector, and it can generate ideas that can be applied by government in the public sector. Foundations can be the engine of industrial policy at two different levels: within the public sector, by picking winners among nonprofits and bringing them to the attention of government; and within the nonprofit sector, by picking winners among nonprofits and signaling to individual donors that they should support them.

It’ll be worth investigating what we’ve learned about industrial policy in different contexts, and thinking about how it applies to nonprofit finance. So much for a closed-ended arc. Closed for the moment, I suppose….

Stones in the river (continued)

Wednesday, October 13th, 2010

Completely fascinated by this New Yorker article about the Chinese economist who’s the head economist at the World Bank. A central tenet of the varieties of capitalism approach I’ve written about extensively on this blog is that there is more than one way to achieve US/European levels of prosperity, and that at least one of those ways involves much more coordination among firms and with government than we see in the US/UK model.

Continental Europe and Japan offer alternative modes (varieties) of capitalist development. For Japan, and the other East Asian “tigers” like South Korea and Singapore, the timing of their development is very important. After World War II, the U.S. continued to have a strong military presence in the region, essentially providing a basis of security. As a result, these countries focused on economic development, and did so in a relatively egalitarian way, involving the countryside in the process (unlike in Latin America, where development has exacerbated existing inequality, particularly in the absence of land reform in most countries).

In this context, China’s development in the last 30 years is interesting, because it happened not with the U.S. de facto providing security through its presence in the region, but through a complex and destructive internal history including the horror of the Great Leap Forward (between 30 and 45 million people died in the attending famine) and the gradual economic (not political) opening under Deng Xiaoping, against the backdrop of Cold War US-Russian rivalry. And the approach, as I focused on yesterday, was “tinkering gradualist,” as Justin Lin, the economist, puts in the article.

Crucially for the varieties of capitalism approach, the government played a key role in promoting development. Lin

“favors a kind of ‘soft’ industrial policy, in which a clamorous free market produces new industries and firms, and the government spots the best prospects and helps them grow by giving them tax breaks and building infrastructure like ports and highways…to rise out of poverty…markets are ‘indispensable’ but government is ‘equally indispensable.’”

Two things there: 1) Wow, that first part sounds a lot like the Social Innovation Fund. Industrial policy for the nonprofit sector? 2) The last phrase is a perfect summary, to me, of the basic varieties of capitalism argument. And it’s a perspective that’s very much needed in current political debates about the role of government.

The question is how philanthropy fits in to all of this. It’s traditionally been seen as part of the third sector between government and business. If we apply a Lin-style developmental/varieties-of-capitalism view, where does philanthropy fit in? To be continued….

Throw another stone in the river, Paul Carttar

Tuesday, October 12th, 2010

Fascinating article in the New Yorker on the head economist of the World Bank, who’s Chinese, and his relationship to China’s boom. For me the most intriguing parts are the implications of the boom for our understanding of the relationship between markets and democracy. As I’ve been saying, the two aren’t inexorably linked (an insight I owe to Jeff Weintraub from a political science seminar lo these many years ago at Williams College). China’s the best example of this: an opening up of markets happening comfortably under an authoritarian regime, and flourishing. At least for the moment; the reaction to the Nobel Peace Prize being given to a leading Tiananmen dissident is indicative of some of the tensions behind the model.

But what’s interesting about the China boom for current philanthropic discussions is the country’s approach to scale. The article describes the policies of the three main economic reformers, Deng Xiaoping, Chen Yun, and Zhao Ziyang:

“Of all their principles, the most important was the willingness to experiment and adapt. When the villagers of Xiaogang and elsewhere stumbled on success, Party leaders expanded their initiative to eight hundred million farmers around the country.”

Sounds like a typical command-and-control economy; what the center says is imposed everywhere – an approach very compatible with authoritarianism, some would say ideally suited. But wait for it:

“China’s reforms had no blueprint. The strategy, as Chen Yen put it, was ‘crossing the river by feeling for the stones.’”

Now there’s a twist: not that they were making it up as they went along, but that they were taking a Social Innovation Fund-style approach to looking for strong local solutions and providing funding to implement them on a large scale. Interesting that the type of political regime best able to take advantage of such an approach (expanding to eight hundred million people!) is an authoritarian one. Talk about varieties of capitalism….

Local knowledge (part 4, Nobel Prize-winning edition)

Tuesday, September 28th, 2010

One of the elements of local knowledge that’s most interesting is local modes of dispute resolution. As a political scientist, I’m fascinated by these because they’re about power exercised and order established within a legal framework but outside state authority. How local modes of dispute resolution interface (or not) with the formal legal system may be a key transition stage between failed state/anarchy/lawlessness and functional state/governability/law & order. (I know that the opposite of anarchy is not governability, but go with it for the moment.)

It may also be an important element of economic development, and I suppose of varieties of capitalism. Last year, Elinor Ostrom won the Nobel Prize in Economics for a lifetime of work on alternative modes of dispute resolution. Here’s a brief blurb on Marginal Revolution, one of my favorite blogs by a couple of small-c catholic economists.

Local knowledge is interesting in philanthropy because it’s a bipartisan issue that folks on the left and right would encourage foundations to privilege more than they do. Presumably this is because the people meant to benefit from foundation-supported programs should be involved in the development of the programs meant to benefit them. So in this case local knowledge is about how resources should be allocated, what problems and their solutions are. Ostrom’s work seems to suggest that local knowledge is also about how disputes can be resolved. What’s the lesson for philanthropy? Seems worth exploring….

This is scandalous

Tuesday, September 21st, 2010

From Henry via Marginal Revolution (emphasis added):

Hence, while Hacker and Pierson show that political science can get us a large part of the way [toward understanding the political causes of economic inequality], it cannot get us as far as they would like us to go, for the simple reason that political science is not well developed enough yet. We can identify the causal mechanisms intervening between some specific political decisions and non-decisions and observed outcomes in the economy. We cannot yet provide a really satisfactory account of how these particular mechanisms work across a wider variety of settings and hence produce the general forms of inequality that they point to. Nor do we yet have a really good account of the precise interactions between these mechanisms and other mechanisms (see here for more on this).

“Political economy” is the study of how politics and political institutions shape economic policy, systems, and outcomes. Hacker and Pierson’s point is that rising levels of economic inequality in the U.S. are not just an outcome of the functioning of free markets, but that the conditions for this phenomenon were created by politics and policy. Classic political economy. The “varieties of capitalism” work that I’ve written about here is, to me, one of the more valuable contributions of political science, and it’s all about political economy.

Especially in today’s virulently anti-government political climate, it’s important to remember that markets need government, not just to be in the background and serve as the night watchman, but to actively create the conditions that allow markets to emerge and function in the first place. The “varieties of capitalism” research gives us a useful account of how this works in other developed countries, and the work of Hal Wilensky takes this to a deep historical level. If Hacker and Pierson are right, to be missing that kind of depth for the U.S. case is just scandalous.

The I in CIVETS (part 3)

Thursday, August 26th, 2010

indonesia_map_2007-worldfactbook.jpg

Continuing a series on Indonesia, the I in CIVETS, a group of countries tagged by a financial analyst as emerging economic powers. I’m wondering what kind of philanthropy there is in such countries, as a way of getting at the first of my two questions, “what is the role of philanthropy in a democratic society?”

Basic facts for context (continued): population, size of the economy, principal industries, political system, ethnic and religious makeup. Where would the country fall on the liberal market economy-coordinated market economy spectrum?

Back again with the CIA World Factbook, an incredibly handy online reference source.

There were 30 million Internet users in Indonesia in 2008, the 11th most in the world. While that’s only about 12% of the population, it’s still a significant number. The literacy rate was 90% in 2004, though that’s unequal by gender (94% male, 87% female).

Eighty-six percent of the population is Muslim. The primary ethnic groups are Javanese (40%) and Sundanese (15%), with a variety of other groups under 4%.

What about varieties of capitalism – where would the country fall on the LME-CME spectrum? This is the glaring blind spot in Hall and Soskice’s work on varieties of capitalism: it’s about the developed economies. According to a recent survey article, “Asia’s economies are at various stages of emergence and transition and do not easily fit into the LME-CME dichotomy.”

This was the feeling I got when I first studied varieties of capitalism in grad school; that it didn’t quite capture the reality of Latin America, the region I was studying. The legacy of colonialism was high levels of inequality, particularly around the distribution of land, and the process of developing in a world where there are already developed countries is fundamentally different. (The latter is one of the ideas that’s most stuck with me from grad school: timing really matters for development.)

Here’s an interesting quote from the same article about how well varieties of capitalism apply in Asia: “Peng et al. (2008) suggest that the key research question for an institutional theory of firm strategy in emerging and transitional scenarios is “how (do firms) play the game when the rules of the game are changing and not completely known” (2008: 5). This sounds very much like Latin America. Is the difference about how firms (or, extending the analogy I explored in prior posts, nonprofits) navigate a weakly institutionalized context, when the rules of the game are in flux? I’ll want to explore what this looks like in Indonesia, and the other CIVETS.

Is the answer “taxes”?

Tuesday, August 24th, 2010

Interesting article in the NYT about giving patterns at different income levels. As has been known for a while, the poor give more as a proportion of their income. Lots to dig into in future posts:

  • What really motivates people to give? Maybe the rich don’t give as much because the tax deductibility isn’t as much of an incentive as we think. What would be a better motivation given the “compassion gap” the article talks about?
  • The article is framed in terms of the upcoming debate over extending Bush’s tax cuts for the very wealthy, setting up a dichotomy between charitable giving and taxes. Is the answer to the question framed in the title of this blog, “democratizing philanthropy?,” just…taxes? Do more taxes = more democratized philanthropy, because the decision-making is put in the hands of democratically elected leaders? Is that the right premise? How much of that decision-making is actually in the hands of democratically elected leaders vs. the hands of appointees in what the Brits call “the civil service” who have less (if any) accountability to the public?
  • “Americans pride themselves on their philanthropic tradition,” the article observes, “and on the role of private charity, which is much more developed here than it is in Europe, where the expectation is that the government will care for the poor.” This speaks to varieties of capitalism, a topic I’ve considered at length on this blog. Motivations for giving in each type of system might be an interesting new angle on that topic.