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History shows that a change of leader in Russia has almost always been accompanied not by civil strife, but by liberalization.

BY Marcos Emilio Pérez Over the past few decades, the combination of economic and political liberalization in many areas of the developing world has promoted the emergence of various forms of collective organizing. This dynamic has been particularly pronounced in … Continue reading →

James A. Dorn


Hong Kong, once one of the freest jurisdictions in the world, with a rule of law that protected freedom of speech and assembly as fundamental human rights, is now under the direct hand of Beijing after the passage of the National Security Law (NSL) in July 2020. One of the victims of that law is Jimmy Lai, founder of Next magazine and Apple Daily, two of Hong Kong's most popular and free‐​market publications.
His strong criticism of the NSL, and his support of mass protests against it, led to the shutdown of both publications and Lai's imprisonment for "subversion." By speaking out against the Chinese Communist Party (CCP) and its cronies in Hong Kong and defending the rule of law and freedom, Lai now faces the possibility of life in prison. Like many others before him, he is a prisoner of the state.
In honor of his valiant effort to uphold the principles that made Hong Kong a bastion of freedom and his courage in standing up to Beijing's suppression of liberal principles in Hong Kong, the Cato Institute awarded him this year's Milton Friedman Prize for Advancing Liberty. Sebastian Lai accepted the award on his father's behalf.
Jimmy Lai, like other prisoners of the state, understands the key role a free market in ideas plays for both economic and personal freedom. In a recent documentary produced by the Acton Institute, he stated: "Information is choice and choice freedom." When the free flow of information is crushed by the state, there can be no criticism of current institutions and leaders: wrong ideas persist and good ideas are suppressed. Consequently, both economic development and personal freedom suffer (see Zhang 2015).
Peter Bauer (1957: 113), the first recipient of the Friedman Prize in 2002, held that "the principal objective and criterion of economic development" is to widen "the range of effective alternatives open to people." Restricting the flow of information and free speech limits the range of choices open to people, impedes the market discovery process, and weakens the moral fabric of society.
China's Attack on the Free Flow of Information
When Deng Xiaoping began to open China to the outside world in 1978, there was both an economic liberalization and an opening of the market for ideas. However, preserving the CCP's monopoly on power has always come first. Although freedom of speech is now embedded in the PRC's Constitution (Art. 35), the state has the upper hand, as expressed in Art. 51: "Citizens of the People's Republic of China, in exercising their freedoms and rights, may not infringe upon the interests of the State." Those interests are wide‐​ranging and offer no guarantee of free speech or other fundamental human rights.
The Tiananmen crackdown in 1989 stalled liberalization until Deng's Southern Tour in 1992. One of the many casualties of that crackdown was Zhao Ziyang, then Party General Secretary and a firm proponent of liberalization. When he spoke out in favor of a peaceful settlement with the protesters, he was purged from his position and put under house arrest for the remainder of his life.
Although Zhao's voice was silenced, his posthumous book, Prisoner of the State: The Secret Journal of Premier Zhao Ziyang (2009) became a New York Times bestseller. In that book, he argued that, if China wants to fully develop, it must move toward a parliamentary democracy with a genuine rule of law and a free press (pp. 270–71).
Another enemy of the Chinese state was Liu Xiaobo, one of the drafters of Charter 08. He was charged with "speech crimes" for "inciting subversion of state power" and imprisoned. In 2010, he was awarded the Nobel Peace Prize for his strong support of democracy and human rights—especially free speech. The empty chair at the Nobel ceremony symbolized the struggle for truth against power.
In a statement released on December 23, 2009, Liu wrote: "Freedom of expression is the foundation of human rights, the source of humanity, and the mother of truth. To strangle freedom of speech is to trample on human rights, stifle humanity, and suppress truth." Jimmy Lai would undoubtedly agree
Since Xi Jinping took over in 2012 as General Secretary of the CCP, there has been a carefully managed campaign to squash dissent within the Party and establish Xi as the paramount leader. Now the most powerful leader since Mao Zedong, Xi has silenced all critics, including those in Hong Kong.
In January 2017, the cyber police in Beijing shut down the website of China's leading private, market‐​liberal, think tank—the Unirule Institute of Economics—as well as the personal websites of its scholars. The director of Unirule, Sheng Hong, in a memorandum dated January 24, 2017, pointed to the hypocrisy of Xi Jinping, who paid lip service to free trade in his remarks at The World Economic Forum, while cracking down on free speech at home. According to Hong, "As ideas are more valuable than commodities, anyone who truly defend[s] the freedom of trade will defend freedom of expression" (quoted from a personal copy of the memorandum). The Unirule Institute was permanently banned in August 2019, and the voice of its co‐​founder, Mao Yushi, who received the Friedman Prize in 2012, has been silenced.
Today, access to economic and financial data is being restricted in the name of national security, making it difficult for foreign firms and scholars to gather information necessary to conduct business in China and to understand policy changes (see Wei, Kubota, and Strumpf 2023). Without a free market for ideas and access to relevant databases, it will be difficult to make informed decisions and develop China's financial markets.
China's Future Development
In 2015, Zhang Weiying, a pioneer in China's transition from plan to market, predicted: "The future of China's reform will depend on the kind of ideas and leadership the new leaders, particularly General Secretary Xi Jinping, have. To succeed in a peaceful transition to a liberal society, China must get rid of the wrong ideas" (Zhang 2015: 13). The most serious wrong idea is that economic and social harmony come from top‐​down planning—not from the spontaneous order of free markets and free people bounded by a rule of law that protects persons and property.
Continuous improvement in people's lives comes from taking advantage of new opportunities to exchange goods and ideas. In that endeavor, there must be competition in all markets, including the market for ideas. China's one‐​party system and the lack of free speech are impediments to future development. That is why Ronald Coase and Ning Wang have emphasized that, "when the market for goods and the market for ideas are together in full swing, each supporting, augmenting, and strengthening the other, human creativity and happiness stand the best chance to prevail" (Coase and Wang 2012: 207).
Globalization and trade liberalization help bolster the free market for ideas and widen the range of choices open to people, thus increasing the wealth of nations. Crude nationalism and protectionism do the opposite. Politicizing trade and blocking the free flow of information risks losing the gains from globalization and marketization that have benefited both China and its trading partners.
Conclusion
Hong Kong's turn from the principles that made it a great society—namely, the rule of law, nonintervention, and a free market for ideas—has made successful entrepreneurs and advocates of freedom like Jimmy Lai enemies of the state. By silencing critics—under the guise of national security—both Hong Kong and China have sacrificed liberty in the name of "stability." Reversing that trend is the biggest challenge they face in achieving social and economic harmony.

Over the past decade, two, intertwined research agendas on international financial subordination (IFS) and subordinate financialization (SF) have proposed to identify how an increasingly finance-dominated global capitalism incorporates the (Semi-)Peripheries.
The IFS research agenda recognizes that a "subordinate" national currency comes with a risk premium increasing the costs of financing public debt – in other words, the current, US dollar-based currency hierarchy acts as a structural fiscal constraint in the Global South, limiting the scope for badly needed public investments. Foreign capital – in the form of foreign currency-denominated sovereign and private debt-, foreign aid, and foreign direct investment – is then touted as a solution to this artificial and unfair developmental constraint.
The SF agenda examines how this straightjacket on fiscal space has been further compounded with the liberalization of global capital mobility over the past forty years, diffusing credit-based accumulation strategies from the Core to the Peripheries: the financialization of (semi-)peripheral economies radically misallocates financial resources from socially and environmentally vital public goods and transformative industrial policies towards developmentally regressive strategies of accumulation driven by speculation and asset-price inflation.
Programmatic visions for liberating (semi-) peripheral economies from the dual constraints of a national fiscal space suffocated by the global currency hierarchy and globally mobile capital flows which deepen financialization are underdeveloped. Two scales of action are plausible: At the international level, de-dollarization is promoted by the BRICS bloc, but it remains uncertain what forms of international financial solidarity and collaboration, if any, will materialize under its aegis. The national level comprises an alternative scale as the State continues to be perceived as the most likely candidate for ringfencing domestic social, environmental, and developmental objectives from the pressures of global capital mobility and the structural constraints of the global currency hierarchy.
In a recent co-authored piece with Pınar E. Dönmez, we study the politics governing the management of money in Hungary and Turkey, two semi-peripheral economies where the executive has built a vast array of direct and indirect tools to intervene in monetary policy, retail banking and credit allocation to manage financial subordination [...]
The post Financial Statecraft and its Limits in the Semi-Periphery appeared first on Progress in Political Economy (PPE).

James Bacchus


In this, the third year of his presidential term, President Joe Biden is clearly not making trade—much less trade liberalization—a priority. For the most part, his trade policy is a less strident echo of that of his predecessor, Donald Trump, and, in trade, his has been, as I have previously described it, the reign of polite protectionism. To the extent that he and his administration are negotiating on trade at all, they are negotiating trade deals that cannot truly be called trade deals. Witness the recent announcement of a supply chain coordination agreement with 13 other countries as the first tangible result of the administration's initiative for an Indo‐​Pacific Economic Framework (IPEF). Coordinating operations to safeguard against supply chain disruptions is clearly desirable. So, too, are the administration's professed goals of making trade, as U.S. Trade Representative Katherine Tai puts it, promote "sustainability, resiliency and inclusiveness." But what of the goal of making more trade? This does not seem to be among the president's goals. Yet, doing so could help attain the administration's stated goals while also creating economic gains for the American people that will not otherwise be made.
Not surprisingly, a large coalition of prominent US business groups have expressed their reservations about a purported trade deal in IPEF that does not lower existing barriers to trade by cutting tariffs, streamlining regulatory standards, or providing new protections for the intellectual property that is a huge part of the value of the goods and services exported by the United States. Fearful of Congressional opposition to a trade deal that would reduce U.S. tariff "protections", and fearful, too, of the possible political consequences of the obvious Asia‐​Pacific solution for the United States of simply re‐​joining the Comprehensive and Progressive Trans‐​Pacific Partnership (CPTPP), the president and his advisers are trying, in trade, to make something out of not much more than nothing. What they describe as a "new" approach to trade is not one that makes a priority of lowering barriers to trade. Indeed, based on the evidence so far, the Biden administration seems bent on maintaining and increasing the protectionist barriers erected by the United States that constrain the growth of trade.
For what I think the United States should be seeking globally in trade, see my new Cato Policy Analysis, "The Future of the WTO: Multilateral or Plurilateral?".

Gabriella Beaumont-Smith


On July 4th, many Americans will take to the outdoors to celebrate the Declaration of Independence from my home nation, Great Britain. These days, most people know to lather on sunscreen when spending time outside in the summer (though dermatologists insist sun protection is necessary year‐​round). However, sun protection is not only about safety and avoiding painful sunburn but an anti‐​aging procedure. Now that you can safely tan from a bottle, SPF is ubiquitous—in skincare products, lip balms, and makeup. You can even protect yourself from harmful UV rays with special clothing and umbrellas.
While the sun care aisles in stores make it look like the variety in sunscreen and sun protection‐​related products is diverse, the truth is that the actual UV blockers in products available in the U.S. have barely evolved in the last 40 years. The reason is that the Food and Drug Administration has not approved a new active ingredient for sun care products in decades.
The FDA regulates sunscreen as an over‐​the‐​counter drug, and the agency must evaluate and approve the ingredients before the product can be marketed. To reduce the level that UVA and UVB rays can penetrate skin, active ingredients called "filters" are used. In the U.S., only some physical and chemical filters are permitted, but they tend to either leave that chalky residue or make your skin feel greasy. Many consumers have reported that sunscreens available in other countries, primarily the European Union (EU), Australia, and Japan, are much better. The EU allows 27 different active ingredients to block sunburn and skin damage, whereas the FDA has only approved 17. The number of approved ingredients matters because not all filters can seamlessly be formulated into sunscreens or other suitable products for skin application. Moreover, some of the ingredients approved in the EU and Japan but not the US are more effective and long‐​lasting. As a result, the products do not need to be applied as often, giving consumers more bang for their buck.
But, without FDA approval for new and improved active ingredients, foreign companies selling better sun protection products cannot gain access to the U.S. market, and therefore impede consumers from buying superior sun protection. These types of regulations are known as "non‐​tariff barriers (NTBs)," and are an unfortunate response to the considerable trade liberalization that has occurred in the last 75 years. It is estimated that over 75 percent of U.S. industrial imports (essentially everything but agricultural products) are affected by some type of NTB, compared to 50 percent of U.S. industrial imports that are subject to tariffs. Put differently, one‐​quarter of U.S. industrial imports are free from NTBs and one‐​half are free from tariffs. Thus, the coverage of barriers to U.S. imports remains high, costing consumers.
So, as you celebrate America's Independence Day, remember the importance of liberty because it affects everything, even the quality of your sunscreen.

My latest paper, 'Pandemic Ethics and Status Quo Risk', has just been accepted for publication in Public Health Ethics. Here's the abstract:Conservative assumptions in medical ethics risk immense harms during a pandemic. Public health institutions and public discourse alike have repeatedly privileged inaction over aggressive medical interventions to address the pandemic, perversely increasing population-wide risks while claiming to be guided by "caution". This puzzling disconnect between rhetoric and reality is suggestive of an underlying philosophical confusion. In this paper, I argue that we have been misled by status quo bias—exaggerating the moral significance of the risks inherent in medical interventions, while systematically neglecting the (objectively greater) risks inherent in the status quo prospect of an out-of-control pandemic. By coming to appreciate the possibility and significance of status quo risk, we will be better prepared to respond appropriately when the next pandemic strikesThe central idea is that heuristics of ambiguity-aversion and favouring inaction over (potentially risky) action can be expected to backfire terribly in circumstances -- such as a pandemic -- in which "business as usual" is leading us towards disaster.  Instead, I suggest that our policy and institutional responses to such emergency circumstances need to be rebalanced towards (i) liberalizing access to experimental treatments and vaccines, and (ii) requiring an explicit cost-benefit analysis to justify any sort of vaccine obstructionism (e.g. failure to immediately grant Emergency Use Authorization to any credible candidate vaccine early in the pandemic, and of course any post-authorization suspensions).Other key points of the paper:(1) "Governments and their agencies are not generally entitled to describe vaccine suspensions as reflecting "an abundance of caution", unless they can show that the policy actually reduces overall risk. If it instead increases overall risk, it would seem more objectively accurate to describe such suspensions as "reckless"—as they would then reveal a reckless disregard of the objectively greater threat posed by the unchecked spread of the virus."(2) Non-consequentialists should be even more appalled by vaccine obstructionism, as it constitutes harmful coercion resulting in death (which is to say: killing) by the government -- no less than if the FDA sent out agents to steal a cure from the hands of those who will die without it.(3) Vaccine challenge trials were a no-brainer, and opposing them on ethical grounds constitutes anti-beneficent paternalism -- a kind of moral insanity.  The basic argument also carries over to "any research that has a feasible chance of reducing the population-wide toll of the pandemic," including research into variolation, and challenge trials for candidate preventative measures (such as antiseptic nasal sprays). (4) Early targeted immunity via variolation (ideally preceded with experimental vaccination) could have done a lot of good, slowing the spread of the virus and freeing many healthy young people from unnecessary lockdowns.(5) Fear of "vaccine hesitancy" provides but weak reasons to oppose liberalization.  I offer several reasons for this in the paper, but I think the strongest is that however much you'd like to reduce vaccine hesitancy, it isn't ethical to pursue this goal via killing innocent people, but (as per #2 above) that's precisely what obstructionism amounts to.(6) If you're on board with my conclusion that pandemic policy was rife with status quo bias, the next step is to design institutional reforms to change the incentives that lead to this result.  Right now, "policy-makers are more likely to be blamed if an intervention goes wrong (resulting in highly salient identifiable victims), whereas they tend to escape blame for inaction that results in grave preventable harms (many of which may be less salient, or only linkable to the policy decision on a statistical basis—we cannot identify which particular deaths would have been prevented by earlier access to vaccines, for example)."  My paper doesn't address this problem, but perhaps it could help to shift EUA-granting authority to a new institution that's authorized to make such decisions on the basis of explicit cost-benefit analysis, and very explicitly does not recommend that anyone take the experimental treatments that it authorizes (i.e. makes legally available) for personal use.

Daniel Raisbeck and Gabriela Calderon de Burgos


For the first time since 1991, Argentina suffers from annual inflation rates above 100 percent. As voters prepare to head to the polls on August 13, the date of the presidential primaries for all parties, a majority thinks—regardless of ideology— that inflation is the country's most pressing problem. Meanwhile, a significant minority—29 percent according to one poll— now considers that the best way to tackle inflation is to get rid of the Argentine peso altogether and adopt the U.S. dollar as the official currency. They are absolutely right.
As we explain in a new briefing paper out today, dollarization works because it deprives the local ruling class of all control over the national currency. This protects ordinary people's purchasing power from the excesses of chronically profligate politicians and often subservient—or simply incompetent—central bankers. Along with Peru, a semi‐​dollarized economy, Latin America's three fully dollarized countries—Panama, Ecuador, and El Salvador—have had the region's lowest inflation levels during the past 20 years (and much longer in the case of Panama). Unlike many countries in the region, the dollarized trio did not see double‐​digit inflation in the aftermath of the Covid‐​19 pandemic. Steve Hanke, a Johns Hopkins University economist, puts it well: dollarization is equivalent to instituting the rule of law in the monetary sphere.
Dollarization is often compared to the convertibility system that Argentina implemented in the 1990s, a monetary regime consisting of the Central Bank maintaining unlimited convertibility between its currency and that which it is pegged to at a fixed exchange rate. That system ultimately fell apart because it deviated from following orthodox rules. But because dollarization simply replaces a local currency with a foreign one, it does not depend on a promise from the political class to abide by a certain set of rules and it has proven much harder to undo. As we explain in our policy brief, this does not imply a country's surrender of its monetary policy to the United States:
"As economist Juan Luis Moreno‐​Villalaz argued in the Cato Journal in 1999, Panama's banks, which have been integrated to the global financial system after a series of liberalization measures in the 1970s, allocate their resources inside or outside the country without major restrictions, adjusting their liquidity according to the local demand for credit or money. Hence, changes in the money supply—which arise from the interplay between local factors and the specific conditions of global credit markets— and not the Federal Reserve, determine Panama's monetary policy. Fed policy affects Panama only to the same extent that it does the rest of the world".

In Argentina, opposition to dollarization comes from critics on both the left and the right. The former usually claim that adopting the dollar is a costly affront to national sovereignty (the cost pertaining to the loss of seigniorage). The latter tend to argue that local technocrats will be left without monetary tools with which to steer the national economy. Neither side has come to terms with the reasons why an overwhelming majority of Panamanians, Ecuadoreans, or Salvadoreans wouldn't dream of ditching the dollar in favor of weak national currencies. In fact, minimal inflation rates are but one benefit of dollarization. The others include far lower interest rates, longer loan periods, and an intrinsic hard budget constraint on governments and parliaments alike.
Despite such advantages, dollarization is certainly no guarantee of fiscal discipline or sustained economic growth, as the recent experience of both Ecuador and El Salvador can attest. Nonetheless, dollarization is worth it simply because it leaves politicians and bureaucrats unable to devalue a local currency or monetize the debt, thereby limiting the magnitude of the potential harm. During the 2010s, radical left‐​wing governments in both El Salvador and Ecuador were unable to get rid of the dollar despite their anti‐​dollarization rhetoric. The pros of dollarization may be difficult to grasp ex‐​ante; once it is instituted, however, dollarization's benefits in daily life are so palpable to a large majority that the greenback has become demagogue‐​proof in a region ripe with demagoguery.
The loss of seigniorage, it turns out, is an infinitesimal price to pay for the advantages of dollarization. Manuel Hinds, a former finance minister in El Salvador, likens giving up seigniorage to paying a small insurance premium for protection against the very high risks of maintaining a local currency. Nor is a lack of large dollar reserves an excuse not to dollarize.
In Ecuador, the mere announcement of dollarization in January of 2000 led to a massive increase in deposits in dollars previously held abroad or under mattresses. This was the case even though the beleaguered banks were offering negative interest rates.
As we discuss in our briefing paper, adopting the dollar can also help solve Argentina's serious problem with short‐​term liquidity notes, the debt of which is more than twice as large as the monetary base. This is yet another reason why Argentina's next government should dollarize, albeit taking seriously the technical challenges that dollarization presents.
The Argentinean peso no longer provides the basic functions of money. Argentineans already use the dollar as a unit of account and—if they can overcome multiple legal obstacles and afford significant transaction costs—as a store of value and a medium of exchange for important transactions. Dollarization would democratize the latter two essential functions of a sound currency.

Russia's invasion of Ukraine opened with a march toward Kyiv. The northern thrust of this push came from Belarusian territory. To this day, Belarus remains a hub for Russian attacks on its southern neighbor. Worryingly, the country now hosts Russian tactical nuclear weapons, a situation unthinkable a few years earlier. Why did Belarus, previously keeping its distance from Russian power, throw in its lot with Moscow? Could the United States have prevented such an outcome?Since its independence, Belarus has had close relations with Russia but always stayed out of the Kremlin's overwhelming shadow. Following the 2008 Russo-Georgian War, Minsk refused to recognize the independence of Abkhazia and South Ossetia, despite Russia's insistence. A dispute over dairy product exports led to the 2009 "Milk War." Relations became so poor that Russian TV channels aired programs presenting President Alexander Lukashenko as a despicable tyrant, something unimaginable today.Before 2014, Americans and Europeans had little sympathy for "Europe's last dictatorship." But the Crimean annexation, the Donbas war, and the Russian threat's resurrection changed the West's outlook. Some envisioned pulling Belarus away from Russia's orbit and associating it with Europe instead. Western capitals put democracy promotion on hold for dialogue's sake. Belarus, too, felt an existential threat and pursued better relations with the West. It became defiant toward Moscow and tried to limit Russian influence over the national military.Belarus released all its political prisoners in 2015 to please the United States. In turn, Washington ended some sanctions on the regime. While the Russians pushed hard to establish an air base, the Belarusians resisted. They also distanced themselves from Russia's most confrontational policies. For instance, Lukashenko invited NATO observers to the massive 2017 Russian-led Zapad military maneuvers, fearing the exercises would scare away its Western neighbors.Bilateral U.S.-Belarus relations kept improving. In October 2018, Assistant Secretary of State Wess Mitchell was the first senior American diplomat to travel to Belarus and meet Lukashenko in over a decade. Diplomatic contacts intensified, and the two countries signed a bilateral "Open Skies" agreement, a sign of increasing trust. Then-national security adviser John Bolton visited Minsk in August 2019. Lukashenko responded enthusiastically to American openings, encouraging him to resist Russian pressure to accelerate political and economic integration in the supranational "Union State." That year also saw Belarus take significant steps to hedge against the Russian risk. Minsk introduced a policy of "Belarusianization" to mobilize the populace's nationalism and insulate it from Russian societal influence while introducing a visa-free regime for EU and American citizens' short-term travels. The country intensified its efforts to modernize the military and sent security cooperation feelers toward Lithuania, Poland, and Ukraine, all countries at odds with Russia. Minsk expressed hope for building up ties with NATO.In February 2020, then-Secretary of State Mike Pompeo visited Belarus. Never had U.S.-Belarus relations been so cordial, and never had Russia-Belarus relations been so poor. When Belarus faced an oil price dispute with Russia, Pompeo quickly agreed to sell it oil, justifying that this deal "strengthens Belarusian sovereignty and independence," a wise policy if one fears Russian influence. But the U.S.-Belarusian honeymoon was not to last, and the Russians soon gained more than they ever bargained for.In 2020, Lukashenko's decision to run for the upcoming presidential election profoundly disgruntled the liberal opposition, as the election would likely be rigged in his favor. Indeed, he won the August election in a landslide. This engendered a mass protest movement against the regime. Following the EU, the United States refused to recognize Lukashenko's victory, sanctioned his regime, and openly sided with the opposition. U.S.-Belarus ties became nonexistent. After relations with the West collapsed, Belarus threw in its lot with Moscow. Sensing the opportunity, Putin was quick to congratulate Lukashenko for his victory. He assured Minsk he would deploy Russian security forces if the protest movement got out of control. Now in the Kremlin's debt, Lukashenko and Putin had a flurry of conversations and meetings, and Lukashenko accelerated the Union State integration process in exchange for Russian money. In retaliation to the West's hostility, Minsk engineered a migrant crisis by pushing large numbers of refugees toward the Polish border. Throughout 2021 and early 2022, military cooperation reached a height unseen before, which we know in hindsight was preparation for Russia's invasion of Ukraine. The two countries' air defense units started joint combat duties, and Belarus finally agreed to host the Russian air force. In November 2021, Lukashenko promised to intervene in a future war in Ukraine and acknowledged Russian sovereignty over Crimea. Belarus also decided to amend its constitution to introduce Russian nuclear weapons. Previously, Russian forces could enter Belarus only during prearranged exercises. But pretexting military maneuvers, Russian troops arrived en masse. Ultimately, Belarus received the West's opprobrium for accepting that Russian forces use its territory to attack Ukraine on February 24, 2022.This sequence shows that adroit statecraft can accomplish much at little cost and that ideology can create widespread, unforeseen damage to U.S. interests. Minsk resisted aligning with Moscow until 2020 despite intense Russian pressure. Indeed, the U.S. and European engagement policy after the 2014 Ukrainian crisis offered Belarus leverage over the Kremlin. However, following the 2020 elections, Washington abandoned engagement and opted for maximum pressure, perceived as regime change. Out of options, Lukashenko requested Russian help. Now forced to do Putin's bidding, he accepted the Russian military on his soil, enabled the thrust toward Kyiv in early 2022, and now even hosts Russian nuclear weapons. Washington had no direct interest in openly siding with the opposition against Lukashenko. Had the protesters seized power, it could have endorsed them. Had Lukashenko triumphed, it could have maintained the course of strengthening Belarus's hand against Russia. But America's urge to support the losing side for ideological motives sank U.S.-Belarus relations to the bottom and made it impossible for Minsk to play the West against Russia. Lukashenko was then forced to follow the orders of Putin, his last backer, ultimately leading to Belarusian support for Russia's invasion of Ukraine.Now under Russian military control, independent Belarus's race is run. The current regime might remain in office as a Russian satrap. But the Kremlin will probably conclude that annexing the country represents the safest option to guarantee long-term domination and grow Russia's power base. Counterfactuals are always risky, but Moscow would have struggled to subjugate Lukashenko had the United States not jettisoned engagement for maximum pressure in 2020.Although Belarus's fate is sealed, Washington must not repeat the same mistake elsewhere. Many potential partners to counterbalance Russian and Chinese power are unsavory authoritarian states. Preaching non-proliferation and liberalization, legacy neoconservative policies pushed North Korea toward Beijing despite Pyongyang expressing fear of China's rise. While Iran traditionally eschewed great power alignment, American intransigence and Trump's abandonment of the 2015 nuclear deal encouraged Tehran to embrace China and Russia, even supporting Putin's war effort. Washington can continue growing Beijing and Moscow's spheres of influence by letting ideology drive American foreign policy. In that case, China and Russia will gain additional means to threaten the United States and its allies. Otherwise, it could use efficient statecraft, such as its pre-2020 Belarus policy, to secure new partners and limit its rivals' opportunities. Of prudence or ideology, which will prevail?

With President Milei's election in Argentina, dollarization is suddenly on the table. I'm for it. Here's why. Why not? A standard of valueStart with "why not?'' Dollarization, not a national currency, is actually a sensible default. The dollar is the US standard of value. We measure length in feet, weight in pounds, and the value of goods in dollars. Why should different countries use different measures of value? Wouldn't it make sense to use a common standard of value? Once upon a time every country, and often every city, had its own weights and measures. That made trade difficult, so we eventually converged on international weights and measures. (Feet and pounds are actually a US anachronism since everyone else uses meters and kilograms.  Clearly if we had to start over we'd use SI units, as science and engineering already do.) Moreover, nobody thinks it's a good idea to periodically shorten the meter in order to stimulate the economy, say by making the sale of cloth more profitable. As soon as people figure out they need to buy more cloth to make the same jeans, the profit goes away. PrecommitmentPrecommitment is, I think,  the most powerful argument for dollarization (as for euorization of, say, Greece): A country that dollarizes cannot print money to spend more than it receives in taxes. A country that dollarizes must also borrow entirely in dollars, and must endure costly default rather than relatively less costly inflation if it doesn't want to repay debts. Ex post inflation and devaluation is always tempting, to pay deficits, to avoid paying debt, to transfer money from savers to borrowers, to advantage exporters, or to goose the economy ahead of elections. If a government can precommit itself to eschew inflation and devaluation, then it can borrow a lot more money on better terms, and its economy will be far better off in the long run. An independent central bank is often advocated for precommitment value. Well, locating the central bank 5,000 miles away in a country that doesn't care about your economy is as independent as you can get!The Siren Vase. Greek 480-470 BC. Source: The Culture CriticPrecommitment is an old idea. See picture. It's hard. A country must set things up so that it cannot give in to temptation ex post, and it will regret and try to wriggle out of that commitment when the time comes. A lot of the structure of our laws and government amount to a set of precommitments. An independent central bank with a price-level mandate is a precommitment not to inflate. A constitution and property rights are precommitments not to expropriate electoral minorities. Especially in Argentina's case, precommitment is why full dollarization is better than an exchange rate peg or a currency board. A true exchange rate peg -- one dollar for one peso, as much as you like -- would seem to solve the temptation-to-inflate problem. But the country can always abrogate the peg, reinstitute currency controls, and inflate. An exchange rate peg is ultimately a fiscal promise; the country will raise enough taxes so that it can get the dollars necessary to back its currency. When that seems too hard, countries devalue the peg or abandon it altogether. A currency board is tougher. Under a currency board,  every peso issued by the government is backed by a dollar. That seems to ensure adequate reserves to handle any conceivable run. But a strapped government eyes the great Uncle-Scrooge swimming pool full of dollars at the currency board, and is tempted to abrogate the board, grab the assets and spend them. That's exactly how Argentina's currency board ended. Dollarization is a burn the ships strategy. There is no return. Reserves are neither necessary nor sufficient for an exchange rate peg. The peg is a fiscal promise and stands and falls with fiscal policy. A currency board, to the governmentFull dollarization -- the country uses actual dollars, and abandons its currency -- cannot be so swiftly undone. The country would have to pass laws to reinstitute the peso, declare all dollar contracts to be Peso contracts, ban the use of dollars and try to confiscate them. Dollars pervading the country would make that hard. People who understand their wealth is being confiscated and replaced by monopoly money would make it harder -- harder than some technical change in the amount of backing at the central bank for the same peso notes and bank accounts underlying a devalued peg or even an abrogated currency board. The design of dollarization should make it harder to undo. The point is precommitment, to make it as costly as possible for a following government to de-dollarize, after all. It's hard to confiscate physical cash, but if domestic Argentine banks have dollar accounts and dollar assets, it is relatively easy to pronounce the accounts in pesos and grab the assets. It would be better if dollarization were accompanied by full financial, capital, and trade liberalization, including allowing foreign banks to operate freely and Argentinian banks to become subsidiaries of foreign banks. Absence of a central bank and domestic deposit insurance will make that even more desirable. Then Argentinian bank "accounts" could be claims to dollar assets held offshore, that remain intact no matter what a future Peronist government does. Governments in fiscal stress that print up money, like Argentina, also impose an array of economy-killing policies to try to prop up the value of their currency, so the money printing generates more revenue. They restrict imports with tariffs, quotas, and red tape; they can restrict exports to try to steer supply to home markets at lower prices; they restrict currency conversion and do so at manipulated rates; they restrict capital markets, stopping people from investing abroad or borrowing abroad; they force people to hold money in oligopolized bank accounts at artificially low interest rates. Dollarization is also a precommitment to avoid or at least reduce all these harmful policies, as generating a demand for a country's currency doesn't do any good to the government budget when there isn't a currency. Zimbabwe dollarized in 2009, giving up on its currency after the greatest hyperinflation ever seen. The argument for Argentina is similar. Ecuador dollarized successfully in much less trying circumstances. It's not a new idea, and unilateral dollarization is possible. In both cases there was a period in which both currencies circulated. (Sadly, Zimbabwe ended dollarization in 2019, with a re-introduction of the domestic currency and redenomination of dollar deposits at a very unfavorable exchange rate. It is possible to undo, and the security of dollar bank accounts in face of such appropriation is an important part of the dollarization precommitment.) The limits of precommitmentDollarization is no panacea. It will work if it is accompanied by fiscal and microeconomic reform. It will be of limited value otherwise. I'll declare a motto: All successful inflation stabilizations have come from a combination of fiscal, monetary and microeconomic reform. Dollarization does not magically solve intractable budget deficits. Under dollarization, if the government cannot repay debt or borrow, it must default.  And Argentina has plenty of experience with sovereign default. Argentina already borrows abroad in dollars, because nobody abroad wants peso debt, and has repeatedly defaulted on dollar debt.  The idea of dollar debt is that explicit default is more costly than inflation, so the country will work harder to repay debt. Bond purchasers, aware of the temptation to default, will put clauses in debt contracts that make default more costly still. For you to borrow, you have to give the bank the title to the house. Sovereign debt issued under foreign law, with rights to grab assets abroad works similarly. But sovereign default is not infinitely costly and countries like Argentina sometimes choose default anyway. Where inflation may represent simply hugging the mast and promising not to let go, default is a set of loose handcuffs that you can wriggle out of painfully. Countries are like corporations. Debt denominated in the country's own currency is like corporate equity (stock): If the government can't or won't pay it back the price can fall, via inflation and currency devaluation. Debt denominated in foreign currency is like debt: If the government can't or won't pay it back, it must default. (Most often, default is partial. You get back some of what is promised, or you are forced to convert maturing debt into new debt at a lower interest rate.) The standard ideas of corporate finance tell us who issues debt and who issues equity.  Small businesses, new businesses, businesses that don't have easily valuable assets,  businesses where it is too easy for the managers to hide cash, are forced to borrow, to issue debt. You have to borrow to start a restaurant. Businesses issue equity when they have good corporate governance, good accounting, and stockholders can be sure they're getting their share. These ideas apply to countries, and the choice between borrowing in their own currency and borrowing in foreign currency. Countries with poor governance, poor accounting, out of control fiscal policies, poor institutions for repayment, have to borrow in foreign currency if they are going to borrow at all, with intrusive conditions making default even more expensive. Issuing and borrowing in your own currency, with the option to inflate, is the privilege of countries with good institutions, and democracies where voters get really mad about inflation in particular. Of course, when things get really bad, the country can't borrow in either domestic or foreign currency. Then it prints money, forcing its citizens to take it. That's where Argentina is. In personal finance, you start with no credit at all; then you can borrow; finally you can issue equity. On the scale of healthier economies, dollarizing is the next step up for Argentina. Dollarization and foreign currency debt have another advantage. If a country inflates its way out of a fiscal mess, that benefits the government but also benefits all private borrowers at the expense of private savers. Private borrowing inherits the inflation premium of government borrowing, as the effective government default induces a widespread private default. Dollarization and sovereign default can allow the sovereign to default without messing up private contracts, and all prices and wages in the economy. It is possible for sovereigns to pay higher interest rates than good companies, and the sovereign to be more likely to default than those companies. It doesn't always happen, because sovereigns about to default usually grab all the wealth they can find on the way down, but the separation of sovereign default from inflationary chaos is also an advantage. Greece is a good example, and a bit Italy as well, both in the advantages and the cautionary tale about the limitations of dollarization. Greece and Italy used to have their own currencies. They also had borders, trade controls, and capital controls. They had regular inflation and devaluation. Every day seemed to be another "crisis" demanding another "just this once" splurge. As a result, they paid quite high interest rates to borrow, since savvy bondholders wanted insurance against another "just this once."They joined the EU and the eurozone. This step precommitted them to free trade, relatively free capital markets, and no national currency.  Sovereign default was possible, but regarded as very costly. Having banks stuffed with sovereign debt made it more costly.  Leaving the euro was possible, but even more costly. Deliberately having no plan to do so made it more costly still. The ropes tying hands to the mast were pretty strong. The result: borrowing costs plummeted. Governments, people and businesses were able to borrow at unheard of low rates. And they did so, with aplomb. The borrowing could have financed public and private investment to take advantage of the new business opportunities the EU allowed. Sadly it did not. Greece soon experienced the higher ex-post costs of default that the precommitment imposed. Dollarizaton -- euroization -- is a precommitment, not a panacea. Recommitments impose costs on yourself ex post. Those costs are real.  A successful dollarization for Argentina has to be part of a joint monetary, fiscal, and microeconomic reform. (Did I say that already? :) ) If public finances aren't sorted out, a default will come eventually. And public finances don't need a sharp bout of "austerity" to please the IMF. They need decades of small primary surpluses, tax revenues slightly higher than spending, to credibly pay down any debt. To get decades of revenue, the best answer is growth. Tax revenue equals tax rate times income. More income is a lot easier than higher tax rate, which at least partially lowers income. Greece and Italy did not accomplish the microeconomic reform part. Fortunately, for Argentina, microeconomic reform is low-hanging fruit, especially for a Libertarian president. TransitionWell, so much for the Promised Land, they may have asked of Moses, how do we get there? And let's not spend 40 years wandering the Sinai on the way. Transition isn't necessarily hard. On 1 January 1999, Italy switched from Lira to Euro. Every price changed overnight, every bank account redenominated, every contract reinterpreted, all instantly and seamlessly. People turned in Lira banknotes for Euro banknotes. The biggest complaint is that stores might have rounded up converted prices. If only Argentina could have such problems. Why is Argentina not the same? Well, for a lot of reasons. Before getting to the euro, Italy had adopted the EU open market. Exchange rates had been successfully pegged at the conversion rate, and no funny business about multiple rates. The ECB (really the Italian central bank) could simply print up euros to hand out in exchange for lira. The assets of the Italian central bank and other national central banks were also redenominated in euro, so printing up euros to soak up national currencies was not inflationary -- assets still equal liabilities. Banks with lira deposits that convert to Euro also have lira assets that convert to euro. And there was no sovereign debt crisis, bank crisis,  or big inflation going on. Italian government debt was trading freely on an open market. Italy would spend and receive taxes in euros, so if the debt was worth its current price in lira as the present value of surpluses,  it was worth exactly the same price, at the conversion rate, in euro. None of this is true in Argentina. The central problem, of course, is that the government is broke. The government does not have dollars to exchange for Pesos. Normally, this would not be a problem. Reserves don't matter, the fiscal capacity to get reserves matters. The government could simply borrow dollars internationally, give the dollars out in exchange for pesos, and slowly pay off the resulting debt. If Argentina redenominated interest-bearing peso debt to dollars at a market exchange rate, that would have no effect on the value of the debt. Obviously, borrowing additional dollars would likely be difficult for Argentina right now. To the extent that its remaining debt is a claim to future inflationary seigniorage revenues, its debt is also worth less once converted to dollars, even at a free market rate, because without seigniorage or fiscal reforms, budget deficits will increase. And that leads to the primary argument against dollarization I hear these days. Yes it might be the promised land, but it's too hard to get there. I don't hear loudly enough, though, what is the alternative? One more muddle of currency boards, central bank rules, promises to the IMF and so forth? How do you suddenly create the kind of stable institutions that Argentina has lacked for a century to justify a respectable currency? One might say this is a problem of price, not of quantity. Pick the right exchange rate, and conversion is possible. But that is not even clearly true. If the state is truly broke, if pesos are only worth anything because of the legal restrictions forcing people to hold them, then pesos and peso debt are genuinely worthless. The only route to dollarization would be essentially a complete collapse of the currency and debt. They are worth nothing. We start over. You can use dollars, but you'll have to export something to the US -- either goods or capital, i.e. stock and bonds in private companies -- to get them. (Well, to get any more of them. Lots of dollars line Argentine mattresses already.) That is enough economic chaos to really put people off. In reality, I think the fear is not a completely worthless currency, but that a move to quick dollarization would make peso and peso claims worth very little, and people would rebel against seeing their money holdings and bank accounts even more suddenly worthless than they are now. Maybe, maybe not. Just who is left in Argentina counting on a robust value of pesos? But the state is not worth nothing. It may be worth little in mark to market, or current dollar borrowing capacity. But a reformed, growing Argentina, with tax, spending, and microeconomic reform, could be a great place for investment, and for tax revenue above costs. Once international lenders are convinced those reform efforts are locked in, and Argentina will grow to anything like its amazing potential, they'll be stumbling over themselves to lend. So a better dollarization plan redeems pesos at the new greater value of the post-reform Argentine state. The question is a bit of chicken and egg: Dollarization has to be part of the reform, but only reform allows  dollarization with a decent value of peso exchange.  So there is a genuine question of sequencing of reforms. This question reminds me of the totally fruitless discussion when the Soviet Union broke up. American economists amused themselves with clever optimal sequencing of liberalization schemes. But if competent benevolent dictators (sorry, "policy-makers") were running the show, the Soviet Union wouldn't have failed in the first place. The end of hyperinflation in Germany. Price level 1919-1924. Note left-axis scale. Source: Sargent (1982) "The ends of four big inflations." A better historical analogy is, I think, the ends of hyperinflation after WWI, so beautifully described by Tom Sargent in 1982. The inflations were stopped by a sudden, simultaneous, fiscal, monetary, and (to some extent) microeconomic reform. The fiscal problem was solved by renegotiating reparations under the Versailles treaty, along with  severe cuts in domestic spending, for example firing a lot of government and (nationalized) railroad workers. There were monetary reforms, including an independent central bank forbidden to buy government debt. There were some microeconomic reforms as well. Stopping inflation took no monetary stringency or high interest rates: Interest rates fell, and the governments printed more money, as real money demand increased. There was no Phillips curve of high unemployment. Employment and the economies boomed. So I'm for almost-simultaneous and fast reforms. 1) Allow the use of dollars everywhere. Dollars and pesos can coexist. Yes, this will put downward pressure on the value of the peso, but that might be crucial to maintain interest in the other reforms, which will raise the value of the peso. 2) Instant unilateral free trade and capital opening. Argentina will have to export goods and capital to get dollars. Get out of the way. Freeing imports will lower their prices and make the economy more efficient. Capital will only come in, which it should do quickly, if it knows it can get out again. Float the peso. 3) Long list of growth - oriented microeconomic reforms. That's why you elected a Libertarian president.  4) Slash spending. Reform taxes. Low marginal rates, broad base. Subsidies in particular distort prices to transfer income. Eliminate. 5)  Once reforms are in place, and Argentina has some borrowing capacity, redenominate debt to dollars, and borrow additional dollars to exchange pesos for dollars. All existing peso contracts including bank accounts change on the date. Basically, you want people to hold peso bills and peso debt in the interim as claims on the post-reform government. Peso holders have an incentive to push for reforms that will raise the eventual exchange value of the peso.   6) Find an interim lender. The central problem is who will lend to Argentina in mid stream in order to retire pesos. This is like debtor in possession financing but for a bankrupt country. This could be a job for the IMF. The IMF could lend Argentina dollars for the purpose of retiring pesos. One couldn't ask for much better "conditionality" than a robust Libertarian pro-growth program. Having the IMF along for the ride might also help to commit Argentina to the program. (The IMF can force conditionality better than private lenders.) When things have settled down, Argentina should be able to borrow dollars privately to pay back the IMF. The IMF might charge a decent interest rate to encourage that. How much borrowing is needed? Less than you think. Interest-paying debt can simply be redenominated in dollars once you pick a rate. That might be hard to pay off, but that's a problem for later. So Argentina really only needs to borrow enough dollars to retire cash pesos. I can't find numbers, but hyper inflationary countries typically don't have much real value of cash outstanding. The US has 8% of GDP in currency outstanding. If Argentina has half that, then it needs to borrow only 4% of GDP in dollars to buy back all its currency. That's not a lot. If the peso really collapses, borrowing a little bit more (against great future growth of the reform program) to give everyone $100, the sort of fresh start that Germany did after WWII and after unification, is worth considering. Most of the worry about Argentina's borrowing ability envisions continued primary deficits with slow fiscal adjustment. Make the fiscal adjustment tomorrow."You never want a serious crisis to go to waste," said Rahm Emanuel wisely. "Sequencing" reforms means that everything promised tomorrow is up for constant renegotiation. Especially when parts of the reform depend on other parts, I'm for doing it all as fast as possible, and then adding refinements later if need be. Roosevelt had his famous 100 days, not a 8 year sequenced program. The Argentine reform program is going to hurt a lot of people, or at least recognize losses that had long been papered over in the hope they would go away. Politically, one wants  to make the case "We're all in this, we're all hurting. You give up your special deal, preferential exchange rate, special subsidy or whatever, but so will everyone else. Hang with me to make sure they don't get theirs, and in a year we'll all be better off." If reforms are in a long sequence, which means long renegotiation, it's much harder to get buy in from people who are hurt earlier on that the ones who come later will also do their part.  The standard answersOne standard critique of dollarization is  monetary policy and "optimal currency areas." By having a national currency, the country's wise central bankers can artfully inflate and devalue the currency on occasion to adapt to negative shocks, without the inconvenience and potential dislocation of everyone in the country lowering prices and wages. Suppose, say, the country produces beef, and exports it in order to import cars. If world demand for beef declines, the dollar price of beef declines. The country is going to have to import fewer cars. In a dollarized country, or with a pegged exchange rate,  the internal price of beef and wages go down. With its own country and a floating rate, the value of the currency could go down, leaving beef and wages the same inside the country, but the price of imported cars goes up.  If lowering prices and wages causes more recession and dislocation than raising import prices, then the artful devaluation is the better idea.  (To think about this question more carefully you need traded and non-traded goods; beef, cars, and haircuts. The relative price of beef, cars, and haircuts along with demand for haircuts is also different under the two regimes). Similarly, suppose there is a "lack of demand'' recession and deflation. (90 years later, economists are still struggling to say exactly where that comes from.) With its own central bank and currency, the country can artfully inflate just enough to offset the recession. A country that dollarizes also has to import not-always-optimal US inflation. Switzerland did a lot better than the US and EU once again in the covid era. This line of thinking answers the question, "OK, if Argentina ($847 bn GDP, beef exports) should have its own currency in order to artfully offset shocks, why shouldn't Colorado ($484 bn GDP, beef exports)?''  Colorado is  more dependent on trade with the rest of the US than is Argentina. But, the story goes, people can more easily move across states. A common federal government shoves "fiscal stimulus" to states in trouble. Most of all, "lack of demand" recessions seem to be national, in part because of the high integration of states, so recessions are fought by national policy and don't need state-specific monetary stimulus. This is the standard "optimal currency area" line of thinking, which recommends a common currency in an integrated free trade zone such as US, small Latin American countries that trade a lot with the US, and Europe. Standard thinking especially likes a common currency in a fiscal union.  Some commenters felt Greece should keep or revert to the Drachma because the EU didn't have enough common countercyclical fiscal policy. It likes independent currencies elsewhere.I hope you're laughing out loud by now. A wise central bank, coupled with a thrifty national government, that artfully inflates and devalues just enough to technocratically exploit price stickiness and financial frictions, offsetting national "shocks" with minimum disruption, is a laughable description of Argentina's fiscal and monetary policies. Periodic inflation, hyperinflation and default, together with a wildly overregulated economy with far too much capital and trade controls is more like it. The lure of technocratic stabilization policy in the face of Argentina's fiscal and monetary chaos is like fantasizing whether you want the tan or black leather on your new Porsche while you're on the bus to Carmax to see if you can afford a 10-year old Toyota. Another reason people argue that even small countries should have their own currencies is to keep the seigniorage. Actual cash pays no interest. Thus, a government that issues cash earns the interest spread between government bonds and interest. Equivalently, if demand for cash is proportional to GDP, then as GDP grows, say 2% per year, then the government can let cash grow 2% per year as well, i.e. it can print up that much cash and spend it. But this sort of seigniorage is small for modern economies that don't have inflation. Without inflation, a well run economy might pay 2% for its debt, so save 2% by issuing currency. 2% interest times cash which is 10% of GDP is 0.2% of GDP. On the scale of Argentinian (or US) debt and deficits, that's couch change.  When inflation is higher, interest rates are higher, and seigniorage or the "inflation tax" is higher. Argentina is living off that now. But the point is not to inflate forever and to forswear bigger inflation taxes. Keeping this small seigniorage is one reason for countries to keep their currency and peg to the dollar or run a currency board. The currency board holds interest-bearing dollar assets, and the government gets the interest. Nice. But as I judge above, the extra precommitment value of total dollarization is worth the small lost seigniorage.  Facing Argentina's crisis, plus its catastrophic century of lost growth, lost seigniorage is a cost that I judge far below the benefit. Other countries dollarize, but agree with the US Fed to rebate them some money for the seigniorage. Indeed, if Argentina dollarizes and holds 10% of its GDP in non-interest-bearing US dollars, that's a nice little present to the US. A dollarization agreement with Argentina to give them back the seignorage would be the least we can do. But I don't think Argentina should hold off waiting for Jay Powell to answer the phone. The Fed has other fires to put out. If Argentina unilaterally dollarizes, they can work this sort of thing out later. Dollarization would obviously be a lot easier if it is worked out together with the US government and US banks. Getting cash sent to Argentina, getting banks to have easy payment systems in dollars and links to US banks would make it all easier. If Argentina gets rid of its central bank it still needs a payment system to settle claims in dollars. Accounts at, say, Chase could function as a central bank. But it would all be easier if the US cooperates. Updates:Some commenters point out that Argentina may be importing US monetary policy just as the US imports Argentine fiscal policy. That would lead to importing a big inflation. They suggest a Latin American Monetary Union, like the euro, or using a third country's currency. The Swiss franc is pretty good. Maybe the Swiss can set the world standard of value. Both are good theoretical ideas but a lot harder to achieve in the short run. Dollarization will be hard enough. Argentines have a lot of dollars already, most trade is invoiced in dollars so getting dollars via trade is relatively easy, the Swiss have not built out a banking infrastructure capable of being a global currency. The EMU lives on top of the EU, and has its own fiscal/monetary problems. Building a new currency before solving Argentina's problems sounds like a long road. The question asked was dollarization, so I stuck to that for now. I imagined here unilateral dollarization. But I didn't emphasize enough: The US should encourage dollarization! China has figured this out and desperately wants anyone to use its currency. Why should we not want more people to use our currency? Not just for the seigniorage revenue, but for the ease of trade and international linkages it promotes. The Treasury and Fed should have a "how to dollarize your economy" package ready to go for anyone who wants it. Full integration is not trivial, including access to currency, getting bank access to the Fed's clearing systems, instituting cyber and money laundering protocols, and so forth. Important update: Daniel Raisbeck and Gabriela Calderon de Burgos at CATO have a lovely essay on Argentinian dollarization, also debunking an earlier Economist article that proclaimed it impossible. They include facts and comparison with other dollarization experiences, not just theory as I did. (Thanks to the correspondent who pointed me to the essay.) Some quotes:At the end of 2022, Argentines held over $246 billion in foreign bank accounts, safe deposit boxes, and mostly undeclared cash, according to Argentina's National Institute of Statistics and Census. This amounts to over 50 percent of Argentina's GDP in current dollars for 2021 ($487 billion). Hence, the dollar scarcity pertains only to the Argentine state....The last two dollarization processes in Latin American countries prove that "purchasing" the entire monetary base with U.S. dollars from one moment to the next is not only impractical, but it is also unnecessary. In both Ecuador and El Salvador, which dollarized in 2000 and 2001 respectively, dollarization involved parallel processes. In both countries, the most straightforward process was the dollarization of all existing deposits, which can be converted into dollars at the determined exchange rate instantly.in both Ecuador and El Salvador, dollarization not only did not lead to bank runs; it led to a rapid and sharp increase in deposits, even amid economic and political turmoil in Ecuador's case....There is a general feature of ending hyperinflation: People hold more money. In this case, people hold more bank accounts once they know those accounts are safe. Short summary of the rest, all those dollar deposits (out of mattresses into the banking system) allowed the central bank to retire its local currency liabilities. Emilio Ocampo, the Argentine economist whom Milei has put in charge of plans for Argentina's dollarization should he win the presidency, summarizes Ecuador's experience thus:People exchanged their dollars through the banks and a large part of those dollars were deposited in the same banks. The central bank had virtually no need to disburse reserves. This was not by design but was a spontaneous result.In El Salvador also, Dollar deposits also increased spontaneously in El Salvador, a country that dollarized in 2001. By the end of 2022, the country's deposits amounted to 49.6 percent of GDP—in Panama, another dollarized peer, deposits stood at 117 percent of GDP.El Salvador's banking system was dollarized immediately, but the conversion of the circulating currency was voluntary, with citizens allowed to decide if and when to exchange their colones for dollars. Ocampo notes that, in both Ecuador and El Salvador, only 30 percent of the circulating currency had been exchanged for dollars four months after dollarization was announced so that both currencies circulated simultaneously. In the latter country, it took over two years for 90 percent of the monetary base to be dollar‐​based.Cachanosky explains that, in an El Salvador‐​type, voluntary dollarization scenario, the circulating national currency can be dollarized as it is deposited or used to pay taxes, in which case the sums are converted to dollars once they enter a state‐​owned bank account. Hence, "there is no need for the central bank to buy the circulating currency" at a moment's notice.Dollarization starts with both currencies and a peg. As long as people trust that dollarization will happen at the peg, the conversion can take a while. You do not need dollars to soak up every peso on day 1. Dollarization is, above, a commitment that the peg will last for years, not a necessary commitment that the peg will last a day. I speculated about private borrowing at lower rates than the sovereign, once default rather than inflation is the only way out for the sovereign. This happened: ... as Manuel Hinds, a former finance minister in El Salvador, has explained, solvent Salvadorans in the private sector can borrow at rates of around 7 percent on their mortgages while international sovereign bond markets will only lend to the Salvadoran government at far higher rates. As Hinds writes, under dollarization, "the government cannot transfer its financial costs to the private sector by printing domestic money and devaluing it."A nice bottom line: Ask people in Ecuador, El Salvador, and Panama what they think:This is yet another lesson of dollarization's actual experience in Latin American countries. It is also a reason why the vast majority of the population in the dollarized nations has no desire for a return to a national currency. The monetary experiences of daily life have taught them that dollarization's palpable benefits far outweigh its theoretical drawbacks. Even more important update:From Nicolás Cachonosky How to Dollarize Argentina  The central problem is non-money liabilities of the central bank. A detailed plan. Many other blog posts at the link. See his comment below.  Tyler Cowen on dollarization in Bloomberg. Great quote: The question is not how to adopt a new currency, it is how to adopt a new currency and retain a reasonable value for the old one. Dollarization is easy. Hyperinflate the Peso to zero a la Zimbabwe.  Repeat quote. Emilio Ocampo on dollarization as a commitment device. One of the main reasons to dollarize is to eliminate high, persistent, and volatile inflation. However, to be effective, dollarization must generate sufficient credibility, which in turn depends critically on whether its expected probability of reversal is low.... The evidence suggests that, in the long-run, the strongest insurance against reversal is the support of the electorate, but in the short-run, institutional design [dollarization] can play a critical role.Fifty years ago, in testimony to U.S. Congress, Milton Friedman argued that "the whole reason why it is an advantage for a developing country to tie to a major country is that, historically speaking, the internal policies of developing countries have been very bad. U.S. policy has been bad, but their policies have been far worse. ... (1973, p.127)."In this respect, not much has changed in Argentina since. Craig Richardson explains how dollarization failed in Zimbabwe, a wonderful cautionary tale. Deficits did not stop, the government issued "bonds" and forced banks to buy them, bank accounts became de linked from currency. Gresham's law prevailed, the government "bonds" circulating at half face value drove out cash dollars. With persistent government and trade deficits there was a "dollar shortage." 

Dirk Messner on the dynamics
of global change and the significance of international science and technology
cooperation in the post-Western world



This is the fifth in a series of Talks dedicated to the technopolitics of International Relations, linked to the forthcoming double volume 'The Global Politics of Science and Technology' edited by Maximilian Mayer, Mariana Carpes, and Ruth Knoblich 





In recent years, the analysis of new emerging powers and shifting global order has become central to the study of international relations. While International Relations, aiming to evolve into a truly global discipline, is only just about to start opening up towards Non-Western perspectives, global power shifts have already led to a restructuring of global governance architecture in large fields of political reality and practice. Dirk Messner illustrates how far global power shifts have to lead to new patterns of international cooperation using international science and technology cooperation as a case in point. He argues that investment in joint knowledge creation and knowledge exchange is vital for managing the earth system. Messner also points to the multitude of tasks related to socio-technical systems which the political sphere is currently facing, particularly with regard to the challenge of managing the climate system. 




Print version of this Talk (pdf)




What is the most important challenge facing global politics that should be the central debate in the discipline of International Relations?



The biggest challenge of the next decades which we have to come to terms with is governing the big global commons. When I say global commons I do have in mind the atmosphere, the climate system, and other parts of the earth system, but also international financial markets and global infrastructures, such as the Internet – stability of these and other global commons is a public good much required. We need to stabilize the global commons and then manage them in a cooperative manner.



Three dynamics of global change make it specifically challenging to manage these global commons. The first wave of global change is the globalization wave; the economic globalization, cross-border dynamics, global value chains. It becomes evident that in many areas and especially when it comes to the global commons, regulation exceeds the capacity of individual nation states. The international community is required to institutionalize multilateralism and efficient global governance mechanisms in order to properly address issues arising from global dynamics. The second big global change is the shift from a Western to a post-Western world order. Global power shifts remaking the international system impede governing global commons. The third wave of global change is related to climate change, which adds a new dimension of global dynamics; human beings now have to learn how to steer, to stabilize, and how to govern the earth system as such. We are not only a species living on this planet, depending from resources and ecosystems of the earth systems. With the acceleration of economic globalization during the 1990s and the emergence of new, non-Western economic drivers of change, like China, humankind now significantly impacts the physical structures of the earth system. This trend is new. For the first 4,6 billion years of the existence of the earth system it was driven by the laws of physics, the dynamics of biology and bio-chemical processes. Homo sapiens appeared 220.000 years ago, and the impact of our species on the earth system has been marginal until the industrial revolution started 250 years ago. During the last decades human mankind became a major driver of change at a planetary scale.





How did you arrive in your current thinking about these issues?



I have always been interested in international relations, international policy dimensions, and the global economy. I started at the Free University of Berlin at the beginning of the 80's towards the mid-80's, studying Political Science and Economics. One among those professors who have been particularly important to me is Elmar Altvater. He was the supervisor of my diploma as well as of my Ph.D., and he sent me abroad. This resulted being a pivotal experience to me. I studied the last year of my first degree in Seoul, in South Korea. It was the period, the 80's, when the four Asian Tiger states emerged following Japan's example: South Korea, Taiwan, Hongkong, and Singapur. I had the chance to visit these countries, study there and learn a lot about Asia. I was fascinated by the dynamics of emerging economies and what this implied for the international arena. Somewhat later, the Latin American continent became the center of my interest. I did research in Nicaragua, Uruguay, Chile and some other Latin American countries, trying to understand liberalization-movements, how weaker actors come under pressure in Western-dominated global settings, but also how some countries managed it to become dynamic parts of the global economy (like the "Asian tigers" or Chile) and why others failed. I learnt that it is crucial to understand dynamics of global change in order to being able to build solid and inclusive economic structures and legitimate political systems at national levels. There has always been a political impulse that pulled me into certain fields I decided to work in.





What is your advice for students who would like to get into the field of global change research or international cooperation?



My first advice is: visit and work in different countries and different cultural and political settings. It is one thing to learn from scholars or books, but having studied and having lived in different contexts and countries is absolutely a key experience. This is the way to understand global dynamics, to get a feeling for differences and similarities. My second advice stems from my experience and conviction that we need much more interdisciplinary research than we currently have. We talk a lot about interdisciplinarity, however, we do not have career paths that systematically build interdisciplinary teams.



Looking particularly at global environmental changes and the future of the earth system, at the end of the day, social scientists and natural scientists need to learn how to work together and to understand each other. The future of the oceans, for example, is not a question that can be understood by ocean biologists only. They are the people studying how these elements of the earth system are actually working, the dynamics and drivers - focusing on physical, chemical, and biochemical processes. But when we look at the oceans towards 2100 from the perspective of global change, the most important drivers are now us human beings, our economies, our consumption patterns, our greenhouse gas emissions and their impacts on the oceans. And this implies that to understand dynamics of global change, we need to analyze the interactions, interdependences and feedback loops between three systems: the ecological system(s); social systems (our economies and societies) driven by humans; the technical systems and infrastructures. Therefore natural scientists, social scientists, and engineers need to interact very closely.  In the German Advisory Council on Global Change we call this approach: Transformation Research. Currently, we do not possess the appropriate university structures to adequately address this sort of problems. This is an immense institutional challenge. If I were a young scholar I would move into this direction, crossing disciplinary boundaries as much as possible.





What is the role of science and technologies in the dynamics of global change?



There are multiple important dimensions, but I would like to focus on some of them by moving through the aforementioned waves of global change. Technology is driving economic globalization, the first wave of global change. So we need to understand the dynamics of new technologies, especially the impact of ICTs, in order to understand the dynamics of economic globalization. The World Wide Web and social communication media are restructuring industrialization processes and global value chains. ICT infrastructure is also displaying a big potential for less developed regions. In Africa, for example, we saw many African countries jumping from the old telephone technologies to smartphones within less than a decade, because the old, maintenance and capital intensive communications infrastructure was no longer needed. Many African people now have access to smartphones, thus to communication- and information networks, and begin to reshape prize constellations and the global economy. Because of its restructuring effects, the impact of ICTs is relevant in all areas of the global economy. The global trend towards urbanization is similarly related to ICTs. Currently, we approach the global economy via data on national economies. But this might be about to change, as global mega-cities develop into global knowledge and financial hubs, building their own networks. In 2040, 80 percent of the global production, global GDP, global consumption, global exchange might be concentrated in 70 to 80 global cities or city regions.



Technology is also linked to the second wave of global change – the tectonic global power shift – in the way that investment in technology and knowledge in emerging economies are growing rapidly. We are not only facing economic and political power shifts, but also a remaking of the global science and research system itself. From my perspective, international cooperation in the field of science and technology research between "old powers" and "new powers", between Western countries and non-Western countries is extremely important for two reasons: First, we need to pool know-how in order to solve core global challenges and to develop patterns for managing the global commons. Interaction and cooperation in the field of science and technology is especially important for the creation of knowledge that is "better" in any way. For instance, in the field of adaptation policies to the impacts of climate change, most of the knowledge on how societies and local communities actually work or respond under these conditions exists in non-Western societies. The generation of knowledge is context dependent. We need to interact with colleagues from the respective countries for mutual learning and common knowledge improvement. My second argument is that, as an effect of the global power shift, traditional development cooperation is losing legitimacy. Many of these societies, from China to Peru, from Kenya to Vietnam, are no longer interested in our usual business, in our "aid-packages", our money, our experts or our concepts. What they are more interested in is true and reciprocal knowledge exchange and joint knowledge creation. Therefore, investments in respective forms and institutions of knowledge exchange and creation will be a central pillar of/for future oriented development cooperation or international cooperation and beneficial for all partners involved. Joint knowledge creation is a precondition for joint action and legitimate global governance initiatives.



The role of technologies with regard to the implications of climate change is crucial and multifaceted. In the German Advisory Council on Global Change we put forth suggestions concerning the transformation towards a low-carbon global economy. We are relatively optimistic in a technological sense. This statement is partly based on the Global Energy Assessment (GEA) research, which has been driven by Nebojsa Nakicenovic, one of our colleagues, who is working on energy modeling. The perspective there is that we know which kind of technologies we need for the transformation into a low-carbon or even zero-carbon economy. We can even calculate the investment costs and structures of different countries and regions. But we do know relatively little about the transformation processes of entire societies, economies and, eventually, the international system towards low-carbon systems. The transformation towards a low-carbon society is a "great transformation". In the entire history of mankind there might be only two examples for such a profound change: the industrial revolution 250 years ago and the Neolithic revolution 10.000 years ago, which induced the practices of agriculture. Today, we thus witness the third great transformation: the decoupling from fossil resources, from high-carbon to zero-carbon. To achieve the 2° Celsius goal, a complete decarbonization of the basic infrastructures of the global economy (the energy systems, the urban infrastructures and systems, the land use systems) is required – within a very limited period of time, until 2070. Comprehensive knowledge is key to achieve this. Let me emphasize once more the significance of international cooperation in the field of science and technology research, particularly in the IPCC context. I am sure that politicians from China, India, or Brazil only accept what the IPCC is presenting as objective knowledge, as the stand of the art knowledge, because their national scientists are deeply involved. If this were a classical western-based knowledge project it would have resulted in a lack of legitimacy. In the case of global climate policy, it is obvious that investment in joint knowledge creation is also about creating legitimacy for joint action.





What are the main obstacles of the low-carbon transformation?



The first two great transformations have been evolutionary processes. No one "planned" the industrial revolution, not to mention the Neolithic revolution.  These have been evolutionary dynamics. The sustainability transformation instead needs to be a governed process right from the beginning. In our institute, we looked at different transformation dynamics, not only the really big ones, the Neolithic, industrial, and the current sustainability transformation. We also examined structural adjustment programs in Latin America and Africa, the collapse of communism at the end of the 80s, the abolition of slavery, and similar other key transformations of human societies. Based on this historical perspective, we have identified four main drivers of transformation: The first one is crisis, this is the most important one. Confronted with strong crises, society and probably also individuals react and change direction. The second important driver is very often technology and scientific (r)evolution. The third driver is vision: If you are confronted with a problem but you do not know where to go to, transformation becomes very difficult. The European Union is the product of a fresh vision among elites after World War II; the United Nations is a result of the disasters of the first half of the 20th century. Advancing a vision is an essential means to move or to transform in a goal-oriented manner. Sustainability, of course, is also a vision. The fourth and last driver of transformation is "knowledge": you know that you have a certain problem constellation, and though the crisis is still not there, you react based on your knowledge in a preventive way.



For the low-carbon transformation, the fourth driver currently is absolutely key. We are able to address problems which would otherwise become much worse in the future, although the climate crisis is latent still – in contrast to, for example, the financial crisis, which is more visible in its effects. The impacts of a global warming of 4 or 5 degrees are still not visible. This makes for a huge difference. In fact, humans are not very good at acting and transforming significantly based on knowledge only. In combination with visible, tangible crises, knowledge is a strong driver of change, but without crisis, it is merely sufficient. Transformations based on knowledge and preventive action only are rare. The ozone hole is one positive example; solving the problem was possible because it required less complex technological change, affecting few industries only. Human beings are risk-averse in a sense, we are conservative, we do not like to change rapidly; we are path-dependent. John Maynard Keynes once said: "It is easy to develop new concepts and ideas. The difficult thing is to forget the old ones". Therefore, scientific tools are needed in order to sketch out future scenarios. Based on scientific knowledge, we need to convince our societies, our political decision-makers that it is necessary and possible to transform societies and economies towards sustainability – in order to avoid disruptive change in the earth system. Pushing towards sustainability at a point where the crisis has not yet materialized implies a specific and new role for science in managing global dynamics. Organizing a deep transformation towards sustainability avoiding significant crises driven by Earth system changes would be a cultural learning process – a civilizational shift.





What are the effects of growing multipolarity for global governance processes?



To start optimistically, I would argue that in contrast to historical situations in which this kind of tectonic power shifts led to conflicts or even wars, the current situation is different. The world is highly interconnected and economic interdependencies are stronger than ever. Charles Kupchan is differentiating between "war", "cold peace" and "warm peace". I think that a big "war" is not very probable, and "cold peace" is what we are in actually. "Warm peace" would be cooperative global governance: we identify our problems, have a joint problem analysis, and subsequently start acting cooperatively on them. But this does not describe the contemporary situation. While there are no severe global conflicts, we do not solve many of the global interdependency problems.



There are many barriers to global cooperation and I would like to mention two or three of those. The first one consists of power conflicts and power struggles. Hopefully realists such as John Mearsheimer are not right in claiming that "a peaceful rise of China is not possible". But the fundamental point remains that the re-organization and shuffling of power resources is rendering cooperation extremely difficult. The second point is that all the important global actors currently have severe domestic challenges to manage. The European countries are coping with the European dept crisis. Similarly, the United States is concerned with financial turbulences and rising social inequalities. China has to keep its annual growth rate of about 8 to 12 per cent and meanwhile stabilize its rapid modernization process. In India, there is still a large group of people suffering from poverty. So, managing that and trying to be a responsible global actor at the same time is not easy at all. In brief, all actors that we would like to see taking on a more responsible role on the global level are overcommitted domestically.



There is consensus among different disciplines on what cooperation is actually about. At the Centre for Global Cooperation Research we did a study on The Behavioural Dimensions of International Cooperation (2013) based on insights of very different disciplines – evolutionary biology, social anthropology, cognitive sciences, psychology, political sciences, behavioral economics – to find out what the basic mechanisms are which help human beings to cooperate at any scale towards global corporation in a world of nine billion people. Finally, we identified seven factors promoting cooperation: trust, communication, joint we-identities, reputation, fairness, enforcement – and reciprocity, which is the most fundamental prerequisite. These factors form an enable environment for cooperation and they are manmade. In contexts, actor constellations, systems, in which these basic mechanisms of cooperation are strong, they help to embed power dynamics, to solve social dilemma problems and to manage interdependencies. In contrast, contexts, actor constellations, and systems in which theses basic mechanisms of cooperation are weak, will be driven mainly by power dynamics and struggles. By looking at these factors one immediately understands why the G20 context is so difficult. We have been able to create and to well establish these factors in our old settings; in the European Union, the Western world, the transatlantic community. But now we are sitting together with new actors rather unknown. The G7/G8 world – the OECD driven and the western driven global economy and global politics – has moved towards G20 since it was acknowledged that one cannot manage any global turbulence without emerging economies. The G20 was created or rather called to meet in 2008, a few days after the bankruptcy of Lehman Brothers when many feared the collapse of the world's financial markets. Most western economies were highly indebted, whereas the emerging economies, especially China, were holding large currency reserves. From a behavioral perspective we have to invest in these basic factors of cooperation in the G 20 context in order to create the essential preconditions of joint action to solve the big global problems. This represents a long-term project, and unfortunately many of these global problems are highly challenging from the time perspective: a tension derives from the gap between time pressure in many of these areas and the time it probably needs to build up these basic mechanisms of cooperation. In fact, the major feeling is that international cooperation is even weaker now than a decade ago. I usually visualize the current situation of the G20 as a round table with 20 seats but no one is sitting there. Charles Kupchan's "No one's world" or Ian Bremmer's "The G0 world" deal with the same problem: international cooperation, global governance is currently so difficult, although all these interdependency problems rendered the problem of managing the global commons fully obvious. If you talk to our Foreign Ministers or Finance Ministers or Chancellors and Presidents, they of course all know exactly what is out there in terms of globalization impacts. But organizing the necessary global consensus and the governance and cooperation structures is tremendously difficult.





How far is the discipline of development research affected by global change?



This is a complex question, to which I do not have a definite answer. The whole field of development research is currently about to get redefined. In the past, the concept of development was clear: On the one side, there was the developed world, the OECD-world, consisting of 35-40 countries and on the other side, the "underdeveloped" part of the world, all other countries. Understanding the differences between developed and developing, along with thinking about the basic drivers of modernization and wealth creation in less developed countries was at the core of development research for a long period. How can poor countries become rich and as developed as OECD countries already are?



Today, it is highly questionable if even the broader categories of "development research" still serve to analyze the new realities. Do we currently still need "development economists", and how would they differ from classical "economists" doing research in those European countries suffering most from the debt crisis, high unemployment and weak institutions? Situations in many OECD countries nowadays look like what one would expect from a still developing or emerging economy, and the other way around. So, what distinguishes development research? This is an important question. Studying non-OECD countries, do we still need development research based governance theories or democratization theories – thus, theories that are systematically different from those we apply in our research on OECD countries? The discipline of development research is under immense pressure. This debate is linked to the second wave of global change we talked about: the post-western world order, emerging economies catching up, convergence trends in the global economy.



If you look at the role of international technology transfer, the same scenario arises: the North-South, donor-recipient categories have dissolved. Technology transfer has lost its distinct direction, and it is much more reciprocal and diffuse than it used to be. There are several studies currently pointing to the fact that investment rates in R&D and in technology creation are growing fast in several regions around the globe, whereas in many OECD-countries, investment is stagnating, or even decreasing. The whole map of knowledge, if you like to say so, is about to undergo deep changes. This implies that the common assumption that knowledge is based in OECD countries and transferred to the South via development cooperation is just not working any longer. We need new patterns of cooperation between different countries in this area. And we need research on global development dynamics which will be different from classical development research which has been based on the assumption of a systemic North-South divide for a long time.







How do institutions such as the World Bank react to the emerging and redefined agenda of development?



The current reorientation of the World Bank as a Knowledge Bank originates from the assumption that knowledge is just as important as money for global development. The second point is that more and more of their partners in non-OECD countries, classical developing and emerging economies, are more and more interested in the knowledge pools of the World Bank and less in their experts. And: dynamic developing countries and emerging economies are even more interested in investments in their own knowledge systems and joint knowledge creation with the World Bank. The old North-South knowledge transfer model is eroding. You might say that there currently are two contradictory global trends: on the one hand via social media and the Internet, knowledge is being widely distributed – broader than ever before and actually, theoretically accessible at any point in the world –, on the other hand the proliferation of knowledge is accompanied with access restriction and control, and the growing privatization of knowledge. Aiming to play a constructive role in collaborative knowledge generation, the World Bank invests a lot in building up freely accessible data bases and open research tools, including the provision of governance or development indicators of any kind. However, this is a difficult process that is developing slowly.



The World Bank is currently undergoing several basic re-orientations. The structures inside of the World Bank are about to become less hierarchical and more horizontal. Originally, the World Bank has been a much more western dominated organization as the Bretton Woods institutions were formed by the United States and its allies. If you look into the governance structures of the World Bank today, it is still largely dominated by OECD countries, but you can notice that this is changing. It is a global organization but 90 % of people working there have been studying at Anglo-Saxon universities. Actors especially from emerging economies have been criticizing that for long, claiming that the World Bank as a global organization should have to be represented by a global citizenship. Although this had slowly started to change already, all the knowledge and all the qualification procedures still remained very western dominated. So they asked the World Bank to diversify its partner structures, to reach out and cooperate with research institutions from around the world. This is what the World Bank is trying to do at the moment, which is really a break with its culture. Because even though the World Bank is a global organization, it has always been a very inward-looking organization. The World Bank was strong, with fantastic professionals and researchers inside, but without cooperating tools. Now they are trying to broaden their cooperation structures and to learn from and together with other institutions.





What are the opportunities and difficulties of big data analysis for global development?



Access to any kind of data is important for any kind of knowledge creation. It has been very limited for many developing countries over a very long time. So, thinking about how to assure access to serious data is significant. This would be my first point. My second point is that, when it comes to big data and the question of managing large amounts of indicators on, for example, cross-country or cross-sector modeling, I think the new technologies are opening up new research possibilities and opportunities. Big data provides the opportunity to identify patterns. Looking for similar dynamics in very different systems is a very interesting exercise, because you get deeper insights into the basic dynamics of systems. This is what I have learned from my colleague Nakicenovic, whom I have mentioned before, and who is working on the Global Energy Assessment, or from Juergen Kurths, from the Potsdam Institute for Climate Impact Research, who is studying basic structures and dynamics of very different complex systems like air traffic networks, global infrastructures and social media networks. Managing big data allows you to see patterns which cannot be seen if you only work with case studies. However, to understand the dynamics of countries and sectors, new actor constellations or communities, you need to go into detail and in this specific moment, big data is only the starting point, the background: you also need qualified, serious, very often qualitative data on the ground. Big data and qualified, specific data: they complement each other.



For sure, an important aspect of big data is that for the most part, it is gathered and stored by private businesses. We started this interview talking about global commons and we actually just defined a global commons: data on development should be a global commons, and we need standards and rules of managing those. Private actors could play a role, but within a set of rules defined by societies and policies, and not the private business sector.









Dirk Messner is the Director of the "German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)" since 2003 and teaches at the Institute of Political Science, University of Duisburg-Essen. He is Co-Director of the "Käte Hamburger Kolleg / Centre for Global Cooperation Research (KHK/GCR)", University Duisburg-Essen, which was established in 2012. He furthermore is Co-Chair of the "German Advisory Council on Global Change (WBGU)", member of the "China Council for International Cooperation on Environment and Development", member of the "Global Knowledge Advisory Commission" of the World Bank and member of the "European Commission's Scientific Advisory Board for EU development policy". Dirk Messner's research interests and work areas include globalisation and global governance, climate change, transformation towards low carbon economies, and development policy. He directed many international research programs and thus created a close international research network.



related links:


Profile at German Development Institute
Messner, Dirk / Guarín, Alejandro / Haun, Daniel (eds.) (2013): The Behavioural Dimensions of International Cooperation, Global Cooperation Research Papers 1, Centre for Global Cooperation Research (pdf)


Read Jing Gu, John Humphrey, and Dirk Messner's (2007) Global Governance and Developing Countries: The Implications of the Rise of China here (pdf)


Messner, Dirk (2007): The European Union: Protagonist in a
Multilateral World Order or Peripheral Power
in the »Asia-Pacific« Century? (pdf)


Print version of this Talk (pdf)