by Terry Anderson

The globe is warming, ice caps are melting, and sea levels are creeping up. The most convincing evidence to an economist, however, is not measurement with thermometers or yardsticks but the fact that people are reacting to price changes, whether the result of government policies or the result of asset markets. Market forces are causing human beings to adapt to climate change, and that movement is the theme of a new book, Adapt and Be Adept.

Adaptation occurs in part because other policies aimed at slowing global warming show little prospect of being implemented or, if implemented, of having much effect.

First, the most common policy proposed for reducing global warming is regulation to reduce greenhouse gas (GHG) emissions. These regulations are the basis for most international agreements, such as the Paris Accord. Not surprising, not all countries sign on to such agreements, and not all that do abide by them, especially those wanting more development, such as China and India. Moreover, because so much carbon is already stored in the atmosphere, these agreements are unlikely to have much effect on global temperatures. In the case of the Paris Accord, even if all countries met the targets, projected temperatures by 2100 would be reduced by only 0.05 degrees Celsius, as Bjorn Lomborg showed in Global Policy in 2015.

Second, the alternative energy forms necessary to drive the global economy have inherent limits that, for the foreseeable future, will make a transition that eliminates hydrocarbons unlikely. Hydrocarbons are here to stay as a major share of the global energy supply, and therefore far more severe greenhouse gas regulations are unlikely to gain traction.

Third, and perhaps most important, politics, more than efficiency, drive climate policy. As Jeffrey Immelt said in answer to a question I posed at the 2008 ECO-nomics Conference sponsored by the Wall Street Journal, “If you’re not at the table, you’re on the menu.” Being at the table means having lobbyists who influence policy. This is why climate change policies promoted by economists as efficient are seldom adopted. Special interest groups seek subsidies, taxes, or regulations that make their products or services more profitable than they would be otherwise. Economists refer to this as rent seeking, meaning that political outcomes have little resemblance to theoretical efficiency depicted in economic models.

Most current policies proposed for reducing global warming or mitigating its effects require collective action. International agreements to reduce greenhouse emissions require global agreements that are difficult to enforce, even if agreed to. National and regional greenhouse gas reduction is easier to enforce but has little hope of reducing global warming because the GHG emissions immediately mix in the global atmosphere; any effect they have cannot be separated from other GHG emissions. Hence, local economies bear costs with few identifiable benefits locally or globally. Moreover, greenhouse gas limits placed on a local economy most often result in “leakage,” meaning emissions are shifted to economies without such regulations …

Continue reading ->
Adapt And Be Adept

Essay by Henrique Schneider*

State-owned enterprises (SOEs)—are important, especially in an Asian context. According to Fortune Magazine’s (2018) 500 list, three out of the world’s top-10 largest companies by revenues were Chinese SOEs: State Grid (rank 2), Sinopec (rank 3), and China National Petroleum (rank 4). Depending on the degree of direct and indirect government support, the next five ranks contain at least a group of near-state enterprises—near-state meaning compa- nies in which the state either is a minor shareholder or has an institutionalized stake: Royal Dutch Shell, Toyota Motor, Volkswagen, BP, and Exxon Mobil. This only leaves two of the world’s ten largest companies neither belonging to nor being backed by the state, Walmart (rank 1) and Berkshire Hathaway (rank 10).

Adopting an even more restrictive understanding, SOEs—companies of which the state is the majority shareholder—account for around 25% of the Fortune 500 entries by number of companies. Around 15% of them are in the People’s Republic of China (PRC), 5% are in other Asian countries, and 5% are in the rest of the world. Following the same criterion, in the list for the year 2005, SOEs constituted only about 6% of the total.

SOEs not only seem to be important as an economic phenomenon; they also seem to be especially relevant to economies in Asia. Some SOEs are not only economi- cally important but also play other, non-economic roles, like attracting, fomenting, and diffusing knowledge and education or securing the political interest of the state.

In recent years, successful SOEs have served as symbols of the (re-)emergence of many Asian economies. On the other hand, there are concerns about SOEs’ governance structures. The Organisation for Economic Co-operation and Development (OECD) published its Guidelines on Corporate Governance of State-Owned Enterprises as early as 2005, most recently updating them in 2015 (OECD 2015). In a 2016 report, the same organization cautioned governments to strengthen their governance standards in SOEs (OECD 2016a). In 2017, the OECD again reminded governments that SOEs could lead to remarkable distortions and to unfair competition (OECD 2017). In 2018, the OECD compared different practices on the governance of SOEs around the globe. It insisted on the need to strengthen monitoring and reporting mechanisms (OECD 2018a). In another report, it identified the independence of boards as success factors in the performance of SOEs (OECD 2018b), and, in yet another, it highlighted risk management as elemental (OECD 2016b).

However, not only international organizations but also state agencies are paying attention to the governance structure of SOEs. An example of national evaluation— in the “East” and the “West”—is the PRC’s State-owned Assets Supervision and Administration Commission (SASAC), which is advancing an agenda on the reform of SOEs to strengthen their governance, focusing especially on the independence of the institutions and their board members as well as on the economic desiderata that the SOEs must fulfill (SASAC 2018). India is considering restructuring and privat- ization (Khanna 2012; Mishra 2014).

On a regional level, the Asian Development Bank (ADB) has published many reports on SOE reform, the most recent being its thematic evaluation State-Owned Enterprise Engagement and Reform (ADB 2018), in which it states that “SOE reform is challenging, but critical” (xxii). This reform, according to the evaluation, should focus on government oversight and the political independence of SOEs, because they tend to improve the governance and performance of those entities (xxv).

This paper is interested in the governance of SOEs. With insights gained from institutional economics, it answers the following question: How can countries reform SOEs to strengthen their governance? Here, this paper claims that, although the guidelines and lessons learned that the above-mentioned authors have identified are necessary for SOE reform, they are not sufficient.

This paper asserts that, in a setting based on new public management (NPM), the ownership strategy and independence are building blocks for the good governance, and for the reform, of SOEs. As important as this answer is, it comes with a limitation of scope. Why does the state set up a company under its control or of which it is the main shareholder? The answer is either to secure strategic sectors or operations or to produce goods in a productive, innovative, and customer-oriented way. While the first part of the last sentence follows a political paradigm, the second follows an institutional paradigm, in this case NPM. In answering the question about how to govern SOEs, this paper limits its scope to the latter, deliberately leaving questions about politics and political economy aside. In reality, however, the two paradigms come together. The last section of the main body of this text briefly addresses this limitation of scope. Other papers deal in more detail with the interaction of politics and institutions regarding SOEs.

The remainder of this text proceeds as follows. After defining state-owned enterprises and new public management, the paper develops a framework for ownership strategy and independence. An examination of how the three factors— new public management, strategy, and independence—enhance the governance of SOEs leads to its conclusion (reviewing its limitations) and to policy recommendations …

Continue reading ->
Strategy, Independence, and Governance of State-Owned Enterprises in Asia

*Henrique Schneider is a professor of economics at the Nordkademie University of Applied Sciences in Elmshorn, Germany and chief economist of the Swiss Federation of Small and Medium Sized Enterprises in Bern, Switzerland.

Henrique Schneider’s essay “Strategy, Independence, and Governance of State-Owned Enterprises in Asia” is the first of 16 contributions from various Economists in the book “Reforming State-Owned Enterprises in Asia – Challenges and Solutions”, published by ADBI, in the “ADB Institute Series on Development Economics”.

This book analyzes state-owned enterprises (SOEs), which are still significant players in many Asian economies. They provide essential public services, build and operate key infrastructure, and are often reservoirs of public employment. Their characteristics and inherent competitive advantages as publicly owned enterprises allow them to play these critical roles. Their weaknesses in governance and inefficiencies in incentive structures, however, also often lead to poor performance.

by Terry Anderson

Deb Haaland, a Native American, is now the secretary of the Department of the Interior. The department houses the Bureau of Indian Affairs, the agency for relations with Indian tribes. Chief Justice John Marshall referred to these groups in 1832 as “domestic dependent nations.” In that same decision, Marshall declared the relationship of Indians to the federal government “like that of a ward to his guardian,” making the secretary the guardian. The ward-guardian relationship became further entrenched in federal law when the Dawes Act of 1887 and the Burke Act of 1906 explicitly said Indian land was to be held in trust by the Department of the Interior and could not be released from trusteeship until the secretary of the interior—now Haaland—deems Indians to be “competent and capable.”

Painting herself the same dark shade of green as her boss, President Biden, has won Secretary Haaland support from environmentalists, but this is not the leadership Native Americans need from her. As interior secretary, Haaland is in a position to oppose the explicit racism in federal Indian policy, for nothing is more racist than calling people wards and giving the government the authority to decide whether they are competent and capable. Will Haaland’s policies acknowledge that Indians are “competent and capable” or will they continue holding them in colonial bondage?

Secretary Haaland can make changes in the Bureau of Indian Affairs (BIA) because she is the trustee of fifty-six million acres of Indian Country. (Throughout Indian Country the acronym BIA is taken to mean “bossing Indians around” by wrapping them in “white tape.”)

Letting the Tribes Prosper

Start with Haaland’s position on oil and gas development. She has consistently said she would “stop all oil and gas leasing on federal lands” and supports “a ban on fracking,” while calling for “no new pipelines.” Holding to these positions and moving the Biden administration’s Green New Deal forward, however, would have major effects on reservations, especially those with significant energy potential. If Native Americans are competent and capable, and they are, theirs is the right to make decisions about oil and gas development on their lands …

Continue reading ->
A “New Deal” For Indian Country?