A descriptive science?

H/T: Mankiw

The devastating effects of uncertainty

Arab teachers from around the Middle East come to Abu Dhabi to teach in public schools. They benefit immensely from the easy lifestyle that this place affords. Their salaries are often more than triple the amount they would receive as teachers in their respective countries. However, there is one cost that needs to be considered.

They have no job security. None.

Tomorrow they could be fired. Indeed, just last week all the English (as in literature, not language) high school teachers were let go. For the thousands suddenly without work, there was no forewarning - no prior announcements. But, teachers had, as they always have, the constant creeping feeling of impending termination.

What does this feeling do to work ethic?

I'll tell you. Uncertainty can decimate work ethic.

Now, to be fair, we all face uncertainty in the workplace. Some of us more than others. Specifically speaking of the potential to be terminated; most of us so called 'professionals' have contracts that protect us from arbitrary decisions made by high level executives. Here, however, especially when working for certain branches of the government, contracts seem to have minimal effect.

I suspect there is a threshold amount of uncertainty beyond which work ethic falls to zero. That could be explained in a graph (my inner economist speaking...) but I'm going to try to explain it with words.

Up to a point uncertainty could be a motivating factor:

         "If you don't work hard, you could be fired!"

When uncertainty includes arbitrariness, it is somewhat of a de-motivator:

          "No matter how hard you work, you could be fired!"

But when uncertainty and arbitrariness pass a certain threshold, people simply don't give a damn anymore:

          "You are probably going to get fired no matter how hard you work."


This is the point where high school teachers are in Abu Dhabi. And, the point many 'ex-pat' professionals are approaching here. Arbitrariness and uncertainty perpetuated by a ridiculously top heavy decision making structure are wreaking havoc on productiveness in this sandy Emirate.

I think the broader concept of the uncertainty threshold can be expanded to many sectors of employment. I imagine poor farmers, in say, Tanzania, facing terrible uncertainty (and arbitrariness) waiting for the rains to come. Should they spend that extra money on fertilizer if the chance of rain is pretty damn slim? Frosty beers do give immediate benefits! I don't mean to generalize that all Tanzanian farmers are tempted by alcohol, just that If I were faced with those choices I'm not sure if I could resist.

Ok, I had to draw one.... :)

Of course, incentives can differ wildly depending on the type of job. Some people that are perfectly secure in their job can maintain high levels of productivity...

Another note on the 'looming' currency war

I wrote this post on the potential for a currency war a while back, arguing that nations ought not to get involved. Since then, few significant headlines have cropped up. With the renminibi steadily rising against the dollar, Europe steeped in greecier bigger problems, and emerging economies faring much better than a year ago, it seems as if the guns have been muffled. Nonetheless, Krugman wrote a post two weeks ago that I think is worth reposting/discussing.

A central tool for understanding monetary policy and foreign exchange rates is the 'impossible trinity' or the trilemma, as I like to call it...

As it says in the middle of the triangle, a country cannot pursue all three policy goals at the same time.

The example in the picture is pertinent, but an equally appropriate starting point is the situation in the US right now.

The US has free capital flows and retains control over its monetary policy, control it is wielding ardently at the moment for the purposes of stimulating the post-financial-crisis economy.

The problem is, with rock bottom interest rates and increasing amounts of US dollars floating around, emerging markets (such as Brazil) are faced with appreciating exchange rates against the dollar. This spells trouble for economies that export massive amounts to the US, and even more trouble for economies with high interest rates that can't easily manage massive short term capital inflows coming from the US. 

...historically speaking, big trouble. On page 14 of this section of this section of the OECD Economic Outlook you can see that one in ten of the 268 countries that have faced a similar episode have fallen into either a banking crisis or a currency crisis.

So, Brazil has three choices, 1) either accept the appreciation of the reál against the dollar (making sales to the US less likely, and capital to flow freely to Brazil), 2) pursue an equally expansionary monetary policy (relinquishing independence and causing unsolicited domestic inflation), or 3) restrict the increase in capital flows and risk scaring away coveted long term foreign investment.

Luckily for countries like Brazil, the IMF has learned, after years of pigheadedness, that capital controls are useful for stemming exactly this type of short-term-investment-fueled boom and bust cycles. In fact, the IMF has been meeting in Rio over this past week to discuss exactly which are the appropriate measures to place on capital in the effort to mitigate the destructive and destabilizing effects of this flighty capital.

As you can see, this poor set of choices that emerging markets face are a direct result of the US trying to save its economy. So, to argue that the US shouldn't put other countries in this position is to argue that the US should give up their independent monetary policy. This will simply not happen. Brazil should know this and stop asking.

Serenity

Abu Dhabi's mercenaries need an incentive to stay

From the NYT on May 14th:

 ABU DHABI, United Arab Emirates — Late one night last November, a plane carrying dozens of Colombian men touched down in this glittering seaside capital. Whisked through customs by an Emirati intelligence officer, the group boarded an unmarked bus and drove roughly 20 miles to a windswept military complex in the desert sand.

The Colombians had entered the United Arab Emirates posing as construction workers. In fact, they were soldiers for a secret American-led mercenary army being built by Erik Prince, the billionaire founder of Blackwater Worldwide, with $529 million from the oil-soaked sheikdom.

Reflex Response is the new name given to the mercenaries formerly know as Blackwater, led by the aformentioned Erik Prince. R2, as the group is know in the Gulf, is in fact an Emirati company, with the government's stake at 51%. Prince has called this place his home for almost a year now, during which time he has been successfully convincing the Sheiks the benefits of a private foreign army (a la Gadafi).

Know for his groups' despicable practices, Prince has been distancing himself from his former company (currently re-branded as Xe). The former name was tainted by their operations in Iraq, where the group received several no-bid contracts amounting to 21 million USD. They have garnered harsh criticism for their behavior (to put it lightly) and have been investigated by several Governments, including the Iraqi government, for their abuses:

From the NYT again:

Contractors often shot with little discrimination — and few if any consequences — at unarmed Iraqi civilians, Iraqi security forces, American troops and even other contractors, stirring public outrage and undermining much of what the coalition forces were sent to accomplish. The mayhem cropped up around Iraq, notably in one episode reported in March 2005 in which a small battle erupted involving three separate security companies... 

...one of which was Blackwater. Most famously, the group opened fire on a crowd of people and killed at least 17 civilians including women and children, and wounded some 30 others in what came to be known as the Nisoor Square Massacre. In April of this year a US federal appeals court reopened the case against four Blackwater mercenaries.

Make no mistake. These are the worst people in the world. They go above and beyond the call of duty for a bloodthirsty gang of mercenaries. They bribe officials, smuggle arms, open fire upon civilians, and shoot at other private soldiers that are supposedly 'on their side'. There are endless stories about companies like Blackwater that mercilessly shoot down defenseless citizens.



Here in Abu Dhabi, the threat of citizens taking action against the government is slim to none. Unlike Bahrain, the people here are religiously homogenous. Unlike Egypt, no political opposition to the government exists. Unlike Libya, the people here are placated with houses, free school and health care, and all manner of interest free loans encouraging entrepreneurship and personal wealth creation. Basically, any and all reasons for uprising have either been dealt with or simply do not exist. As a friend recently put it, "If Emiratis were to protest... well, they'd probably send their Philipina maids in their place. It's too hot outside you know..." Three bloggers were arrested earlier this year for their harsh criticism of the regime, but I still can't imagine an organized demonstration of any kind. So what use is R2?

The main threat to the Sheiks, if any could be cited at all, may come from Iran. It's no secret that the strife in Bahrain this past spring was fomented by Iran. Here, however, there are very few Shia for Iran to eqip with rebellious ideology or weapons.

In any case, the government is easily courted by a security company from the US, a country with which the UAE has close ties. But it is not clear if the US State Department has had any involvement in the deal, or conversely, if Relex Response is in fact breaking US law by training foreign troops without first receiving their blessing. The UAE has had a strong history of pouring money on American military initiatives, and surely the offer of your own personal international guard makes too much sense to reject.

According to the NYT, R2 is spending $9 million per month on initiatives including training Emiratis, and paying south asian laborers to cook, clean and maintain their camp (as one does in this part of the world). Pennies for a Sheik. But operations have not been so smooth. Like any company that comes to the UAE, R2 has been plagued with what we call "runners". Handfuls of employees have been hired and either quit or were fired within months. They come, make a quick buck and realize this place is a desert. But with all the prostitutes in Dubai (rock up to the Fairmont any night of the week and you'll see what I mean) I'm sure R2 can persuade its mercenaries to stay.

They have no other reason.


For more, check out http://www.blackwaterwatch.com/

Zaha Hadid and the despotic reign of design

Designers these days are like gods. They are given such reign over function; the world is blinded by swoopy lines and bubbly surfaces.

It took engineers no less than ten years to figure out how the hell they could build this monstrosity of design that pays little heed to the laws of physics:

Oops, not the shoe that Zaha Hadid designed for Lacoste a few years ago...

Oops, not the ones she did for Melissa. 

I mean this bridge that is down the street from me:

Ten years...

....to build a silly bridge. An engineer could have built it in 3, used half the tonnage of steel and concrete and made it more elegant and more efficient.

Now she's building a building on Saadiyat island:

Stunning.

But form over function is untenable when our (those of us that will use the building) values conflict with the designers' fancy.

In Abu Dhabi, it doesn't even matter that buildings are not functional, as long as they look pretty from a birds eye they'll get the green light. Wouldn't you green light this building?

But, what about the people that have to live in there? Did anyone consider them? What about a nice balcony to take advantage of the beautiful weather? Hmm?!

Designers must be forced to consider the the systems of communication, transportation, energy and waste; the greater environment in which their creation will rest is of utmost importance. They must consider ground level experience and they must play off the surrounding buildings.

It benefits no one when a beautifully designed finger sticks out like a sore thumb.

 Someone tell them that. 

What is this place?

The cure for procrastinating grad students?

Been stalling on your thesis? Another day passes and you can't get off reddit long enough to dig in to that source thats been sitting on your desk for a week?

Well, the University of Chicago (who else?) has come up with a clever way to motivate its grad students. ITs called the "write-in" and it works like this: You pay them $50 and you get a space to work, coffee snacks and lunch for a week. At then end of the week if you have shown up everyday and have gotten some real work done (how they measure that I don't know) you get your 50 bucks back!

I wish my old school had a program like this. Imagine the $50-a-pop college party at the end of a productive week!

H/T: The Nudge Blog

Blattman, Banerjee and Duflo Debate

On Chris Blattman's excellent blog a debate about development sprung up last week.

The question was basically this: What is the best first step for South Sudan as an emergent country?

The two sides are as follows: social spending (Duflo and Banerjee) versus security and private sector (Blattman).

Banerjee and Duflo champion social services for the poor (on the economix blog initially), including: schools, health care, health insurance and even a direct cash transfer system.

Blattman argues, given that South Sudan has little to no operational capacity for such bureaucracies, creating a welfare state would be too much of a burden. He advocates making peace with warlords, and creating invectives for them, and the rich in general, to invest in productive fixed assets such as factories or plantations. He also pushes for an operational police force. His point is that politics is primary and security is at the heart of it: maintain peace and support private sector development. Oh, and build roads.

Banerjee and Duflo respond, that pursuing redistributive policies that target the poor is essentially building the identity of the state. Hopefully, as they suggest, a virtuous cycle would start whereby the poor support the state for putting them first and therefor hold off special interest groups (eg. warlords, elites) from capturing the product of nation (oil mostly for now).

Finally, Blattman remains skeptical. With evidence from Sierra Leone he chops down the benefits of cash transfers. From his own experience in Uganda and Liberia, his opinion of the effectiveness of redistribution programs, as far as they spur development, is jaded.

Of course, we are tempted to think that this is an atrificial trade-off, and that the state of South Sudan can pursue both courses at once. While to some extent that may be true (eg. placating warlords could fit on both agendas) I think the notion that these respective policies build the identity of the state is accurate and useful.

Will the state grow akin to an enlightened version of African socialism of 1960's? Or more like the capitalist enterprise of the 90's plus security and sensibility? Perhaps it is unfair to cast upon them such shadows. In any case, let us all hope for Lant Pritchett's work to have some impact.

In the end, I must admit, I am convinced by Banerjee and Duflo. Perhaps because because of quixotry, perhaps because of this:

IMF Victims

There are so many conspiracy theories floating around the web about Dominique Strauss-Kahn. Of course, many many French people are calling his victim a 'honey trap'/CIA operative set out to bring him down.

If she were such a honey trap you'd expect her to be a blonde bombshell (like many of his other extramarital ladies). But, no, she is an immigrant from Ghana.

Anyone else see a microcosmic parallel with the IMF in general? Trying to rape Ghanaians?