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Edward Miguel - part I

A co-author of the Economic Gangsters explains the business of avarice, desperation and the dark side, from Mugabe to the Somali pirates.

 

Zimbabwean President and consummate economic gangster  Robert Mugabe in Johannesburg, August 2008. (Photo by Mike Hutchings/Reuters)

 

Edward Miguel is the co-author, with Raymond Fisman, of “Economic Gangsters: Corruption, Violence and the Poverty of Nations.” Published in late 2008, the authors use new data, innovative number crunching and various pattern recognition models to plumb the worlds of kleptocrats, corruption, black marketeers and violence.

 

Miguel is a professor of economics and director of the Center of Evaluation for Global Action at the University of California, Berkeley.

 

Passport: What is an Economic Gangster?

 

Edward Miguel: Economic Gangsters come in all shapes and sizes. You can think of Asian dictators who build up networks of crony capitalism to enrich themselves, their families and their friends; you can think of African warlords and rebel militia leaders who smuggle diamonds to fund their militia groups. Economic Gangsters are unconstrained by conscience or morals. They are well understood within the paradigm of economics: the paradigm of wealth maximizing individuals who use violence, corruption and bribery to enrich themselves. And those individuals are found in all societies.

 

In the U.S. and other rich countries, we usually manage to prevent them wreaking too much havoc on society, but in poor countries that have weak governments and institutions, these Economic Gangsters very often are very influential and even come to power.

 

In U.S. history you may think of someone like Al Capone as having some of the characteristics of an Economic Gangster. People know about Capone, that he was leader of the mafia in Chicago during Prohibition. He became very rich selling alcohol. But what they don’t know is that he was trained as an accountant so he was a shrewd businessperson who kept very good books and accounts. But he used that business acumen in a way that was detrimental to society.

 

In the U.S. context, what would have happened if Al Capone had become mayor of Chicago or president of the United States? What would our society look like?

 

Unfortunately for people in poor countries that’s the case. Very often the president is an Economic Gangster. In a lot of Africa and Asian countries, the president is plundering the national treasure to enrich himself and is engaging in illegal activities and organized crime to enrich himself and his family.

 

What we do in the book is try to understand the motives of these people, the consequences of this behavior on economic development outcomes. And ultimately we hope to start putting together policies to help fight them. That’s one of the goals.

 

Passport: In the book, you use parking tickets that U.N. diplomats paid (or didn’t) to make assessments about corruption in their countries of origin; you used Suharto’s fluctuating health and the rise and fall of the Indonesian stock market to chart which companies were in cahoots with the government; you used rainfall data to understand violence in Central Africa. Would you characterize this as a nascent field of economics?

 

Miguel: There are a couple different types of work in the book, but some is tied to forensic economics. Precisely because what Economic Gangsters do is illegal, there’s rarely good data on their activities. It’s hard to get good data on bribes or corruption because no one’s collecting that kind of data. We have to come up with other methods to measure these activities. So it has this kind of forensic feel.

 

There is a growing field in economics — or a subfield — and some of our work is at the lead of that movement in showing other economists ways of measuring these activities. In that sense it is nascent. Some of the other work we do on conflict and civil war and whatnot is sort of new within economics, but it’s the kind of work that maybe other scholars and political scientists and international relations [experts] have done similarly in the past.

 

But we’ve brought a different sensibility to some of those debates, different data sources and different statistical approaches that are really more from economics, and that’s why we’ve been able to have some new insights, like this pattern we talk about in the book between bad rainfall and civil war in Africa. That’s something that was new and stimulated a lot of new research.

 

Passport: In the past the connection between poor economic prospects and spikes in violence has been established. But it’s interesting to take it one step further by using rainfall data — and droughts — to explain why economic prospects dwindle in the first place. How did you hit on that as means to understand what was going on the ground?

 

Miguel: There are two different cases that use a kind of similar approach. One is the link between bad rainfall and civil war; the other is the link between droughts and witch killings. 

 

Both are based on my own research. The witch killing study came first. I was doing research in Tanzania and I found out about this very strange phenomenon of witch killing that was going on. As I started investigating and collecting more data, I came across this very strong pattern between rainfall and witch killing. It had a clear economic interpretation: that in years of extreme scarcity households will do whatever they can to survive, and that may include eliminating certain members of the household, usually the elderly, and elderly woman in particular.

 

Once I found that pattern, I wondered whether that pattern held more broadly — not just localized forms of violent crime, the murder of these old women as witches, but in terms of society-wide forms of violence. And sure enough, we got the data a few weeks later, and we did the analysis and the pattern was there, too.

 

Passport: In some of the research in the book — for instance, using import and export data and tariffs to explain the skewed supply of chickens and turkeys in China — you can really only discover what’s going on after the fact, when all the data is at hand. The rainfall-violence issue is something that you could be more proactive about.

 

Miguel: Exactly, and that was one of the really exciting things.  And that’s one of the things we try to emphasize in the book: once we know the relationship between bad rainfall and violence, in an African country that’s, say, dependent on rainfall for agriculture, early on we can have a pretty good sense of whether that country is at higher risk of political violence and instability. And one of the very concrete proposals in the book is to really bring that knowledge to the fore of foreign aid debates.

 

So rather than just using aid for long-run investment —growth and schools, and things like that, which are all very valuable in themselves — our claim is: too little foreign aid is going to insure countries against these really bad economic shocks that they face all the time, and that can result in war and political instability.

 

That’s part of our RCPS — Rapid Conflict Prevention Support — proposal in the book: to harness that information on weather patterns, to more effectively target foreign aid.

 

Passport: Is there anything especially new about the RCPS concept — the idea of, essentially, insuring against calamity?

 

Miguel: We’re not the first people to say that foreign aid should be used as insurance. An organization like the IMF very much recognizes the importance of helping countries through these hard times. But there’s no mechanism like the one we propose today that does what we want to do. A lot of African countries that are in need of most assistance are on the IMF’s blacklist because they don’t have good enough macro indicators or solid enough policy. So they don’t get this sort of assistance.

 

The U.S. Agency for International Development (USAID) and other bilateral institutions too often are focused on long-run investments or on human aid after a crisis has broken out. But that intermediate form of aid, the kind that’s targeting very carefully, that’s usually what’s missing.

 

We don’t want to say we’re the only ones who thought of this but we’re putting together the pieces in a new way.

 

Passport: Botswana has become the shining example for the rest of Sub-Saharan Africa in that it’s widely touted as a success story. What does that country have that others don’t?

 

Miguel: Botswana is an interesting case in many dimensions. They have free and fair elections. They’ve had good economic growth. They have political stability rather than war. And when people try to figure out the reason, they say: well they have so many diamond mines, that must be part of the story. But that’s certainly not enough. There are plenty of resource-rich African countries that have been disasters. Sierra Leone, where I’ve worked, is a good example.

 

One thing that sets Botswana apart is that their early leadership did institute social programs that provided a safety net for the population, insuring against economic shocks. So the government wasn’t being run by Economic Gangsters trying to plunder the country.

 

Botswana is a semi-arid country, very dry, prone to drought. But when major droughts hit in the 80s, Botswana had already put in place their major drought relief program. It has a lot of similarities with RCPS, which we propose in the book. Botswana’s program is something of an inspiration for our proposal. Their program provides food aid to rural areas in drought years and public works employment for unemployed youth in these difficult economic years. The idea is to use mineral wealth to insure the poor when the country is hit by one of these shocks.

 

At the Aspen Institute a few years ago, the former president, Sir Ketumile Masire, was asked why Botswana was so successful. He said: The leadership cares about the people. They put in place programs that show people the leadership cares about them, and the drought relief program is one very good example. So Botswana has not had a single year of civil war since independence. Their democracy has never broken down. We think a similar sort of insurance program could be implemented in other countries, probably with the assistance of foreign aid donors.

 

Passport: Clearly the so-called big men of Africa — the kleptocrats like Zimbabwe’s Mugabe and Zaire’s [Congo’s] Mobutu — don’t learn the lessons of Botswana. They learn the lessons of the thug-ocracies in other countries and of the colonizers instead.

 

Miguel: The reasons are that they become really rich. It’s the core logic of Economic Gangsters: people who don’t have the sense of social obligation, or moral sense or the conscience, if all they’re out to do is enrich themselves, becoming president of a country, an Economic Gangster, someone like Mugabe or Mobutu, makes perfect sense from the point of view of their own pocketbooks.

 

From the point of view of economic theory though there’s nothing surprising about why Mugabe or Mobutu do what they do. They do it because they can get rich. But we have to think about [is], how can we put in place the constraints or institutions on leaders so they can’t go down that road? So that we don’t leave [the fate of countries] solely under their conscience; so it becomes a matter of law and institution.

 

Most African countries became independent in the 60s. They’re very young, and they inherited very little in the way of good legal institutions from their colonizers and so we’ve had decades now of tumult and insecurity as countries work out new political arrangements and coalitions. But the hope is, over time, those arrangements will build up and constrain the Mobutus, so that even if they come to power, they’re not able to steal as much.

 

 

Passport: Where do the Somali pirates fit into the Economic Gangster model?

 

Miguel: In terms of the causes, who would really want to be out on the seas risking their life facing down U.S. Navy ships unless they were really desperate? Granted these guys can make a lot of money by kidnapping oil company officials or tanker staff. So there is that upside temptation, but it’s incredibly risky business, so the folks doing it have just got to be pretty desperate. That’s part of the problem. The other part is that there’s no effective government in Somalia that can patrol its coasts. So it’s like the perfect storm: no government, incredible poverty, and a really lucrative shipping route right by their coastal waters.

 

In terms of how to stop it, surely in the long run if there were an effective government in Somalia there’d be less piracy. I do think that it could be productive to think about alternative employment opportunities for these Somali fishermen who have these boats. 

 

There’s a rough parallel in what the U.S. faced in Iraq in some of the Sunni areas: a couple years ago when they launched the surge, they started effectively hiring these former Sunni Al Qaeda types to be pro-Iraqi government militias. We basically bought off our enemies put them on salary and then they didn’t attack us anymore. So the question is: could there be an analog with the Somali pirates, could they be hired to provide security? They’d be hired to accompany ships.

 

If they were put on salary, where they weren’t desperate looking for food or their next meal, basically, this would only increase the cost of shipping by some tiny amount but those crumbs could be a lot for these Somali guys with their boats.

 

Is there a way to pay these guys preemptively to say: we’re going to give you a salary every month, but if anyone in your crew is caught attacking one of our ships, you’re never going to get paid again and we’ll go after you?

 

You could even have the other side, where Somali fishermen get a reward for reporting on any Somalis who are going to engage in piracy or get a reward for handing over any of their comrades who were engaged in piracy. So I think there may be a smart way to do it if the world major powers got together.

 

Paying pirates doesn’t sound good, of course, just like paying Al-Qaeda in Iraq doesn’t sound good. In the U.S., we didn’t realize our commanders were doing that until much later when it was proving to be successful. But that’s the kind of logic that our book advances, and it’s related to our RCPS concept: there are desperate men out there willing to use violence when they’re incredibly poor. By giving them some stake in the system that can prevent them from falling off a cliff into dire poverty we can prevent a lot of violence. And I think the Somali pirates fall into that camp.

 

Passport: What about the Niger Delta, where you’ve got a similar case of people attacking oilrigs and kidnapping. It seems like some more direct engagement with the area — infrastructure projects, etc — would help lesson the perils of doing business there. Whose job is it: private enterprise or a corrupt Nigerian government that’s totally ineffectual? Is it in private enterprise’s interests to play a bigger role, and essentially run a kind of de facto government in some of these places?

 

Miguel: That’s a tough place to be for a company. I think Shell has in the past engaged with pretty unsavory types, so I wouldn’t think they would hesitate at all to deal with these militias in the Niger Delta. But very often oil companies do engage in some community development projects, they do hire local staff and do other things when they move into a new area, and you can actually see those kinds of programs very much in the way that I was describing the Somali pirate buyout: we’re moving to the area, we’re going to generate a lot of wealth and oil revenue, you really want local officials to be on board, you really want local influential people to be on board, basically on salary, you want to build some schools and clinics in the area, so everybody feels they have a stake in the success of this endeavor, this foreign investment.

 

And if there is political instability and local leaders start attacking Shell pipelines or Shell workers, Shell can pull all those development projects out, pull those salaries out and give local leaders something to lose. So I think on one level a lot of oil companies are already doing this, they’re already trying to buy off local leaders through their community relations and community development projects.

 

Now in the Niger Delta it hasn’t been enough. It is true that in the Nigeria you’re dealing with a government that on so many levels is just amazingly corrupt and has been, where there are certainly factions in the govt. that are in cahoots with these militias in the Niger Delta. Folks in the government who don’t feel like they’re getting enough of a cut from Shell, one way they can boost that is by supporting militias that are harassing Shell and maybe demanding various concessions. Or maybe they’re stealing oil from pipelines...the corrupt officials can split the loot with these militias.

 

 

http://www.globalpost.com/passport/newsmaker-interview/090810/edward-miguel