Diagnostics For A Globalized World

Sten Thore, Ruzanna Tarverdyan

• Publisher: WSPC
• Year: 2015
• eBook ISBN: 9789814641456
• Topic: Scienze biologiche
• Subtopic: Scienza generale

How do you gauge the accomplishments of policy and its failures? While a number of nations are successful in optimizing a socio-economic welfare function, others are woefully falling short of the optimal frontier. Diagnostics for a Globalized World proposes a reformulation of the inherited theory of economic and social policy (codified in the 1950s by Jan Tinbergen) to find a diagnostic tool in measuring the effectiveness of economic and social policy. Using a logarithmic adaptation of data envelopment analysis, the authors explain how to rank the attainment of nations of multidimensional goals such as those expressed by the UN Millennium Development Goals (MDGs) and upcoming Sustainable Development Goals (SDGs).

Contents:

• Foreword (Dr David V Gibson)
• Preface
• Introduction
• The Economic and Social Policy of Nations: Achievements & Failures:
  • Overview
  • The Theory of Economic and Social Policy Reconsidered
  • Rating Country Performance by Frontier Analysis
  • The Beginnings
  • Decent Work
  • A Fair Globalization
  • Nested Decision Trees
  • Competitiveness
  • Disequilibrium and Chaos
  • Appendices
• A Geneva Consensus (Ruzanna Tarverdyan):
  • Overview
  • Beyond GDP
  • Beyond the Washington Consensus
  • Toward a Sustainable Globalization
• Remembering Times Past and Honoring Four Great Scholars (Sten Thore):
  • Overview
  • Jan Tinbergen
  • Abe Charnes
  • W W Cooper
  • Ilya Prigogine
• References
• Index

Readership: Postgraduate students taking courses in International Trade and International Relations; students of Operations Research illustrating the use of the quantitative technique called data envelopment analysis (DEA) to gauge the economic performance of nations; national and international policy makers in charge of evaluation of effectiveness and efficiency of policy interventions.
Key Features:

• Presents a metric for the social and economic performance of nations that international organizations such as the ILO, the World Bank, UN, WTO, UNCTAD, OECD, EC, UNECE, and the World Economic Forum are currently scrambling to develop
• Expands on earlier work published jointly with W W Cooper, ranking 102 nations on all continents in terms of their achievements of “Decent Work” and “A Fair Globalization”. The present study also includes a study of the “competitiveness” of nations, comparing the work by the US Council for Competitiveness and the World Economic Forum
• Includes the last published work by the late W W Cooper, the co-founder of data envelopment analysis, actually extending his own pioneering work of 1978. Published on the occasion of Cooper's centenary in 2014, and sponsored by Cooper's long-term academic home — the IC 2 Institute (Innovation, Creativity and Capital), The University of Texas at Austin

Part I

The Economic and Social Policy of Nations: Achievements and Failures

Part I

Overview

The present work is directed to readers who would like to assess and compare the effectiveness of economic and social policy on the international scene, identifying opportunities and mechanisms for possibly improved performance. A new type of metrics will be proposed — rating current or past policy achievements — identifying laggards and winners.

The existing theory of economic policy was put in place by the Dutch economist Jan Tinbergen who wrote the classical tome on the subject, Economic Policy: Principles and Design (Amsterdam 1956). This work still stands as a major theoretical achievement, yet it is not well suited for empirical application, and in many ways it came to represent a dead end, providing little help to today’s economist. A new departure is needed.

Appointed after the war as director of the newly established Central Planning Bureau for the Netherlands, Tinbergen constructed mathematical models of the Dutch economy where many variables could be considered as “instruments” of policy, like financial aggregates, interest rates, and data on the government budget. Could such variables be manipulated by economic policy to meet desired ends?

Tinbergen postulated the presence of a “social welfare” function expressed as a function of an array of suitable economic goals. These would include aims such as international peace, maximum real expenditure per capita, and the distribution of income over social groups and countries. Tinbergen suggested maximizing social welfare subject to constraints imposed by technology, resources, and (to some extent) political feasibility.

In the pages to follow, we shall present a set of numerical calculations that attempt to breathe empirical life into the programming problem of economic policy suggested by Tinbergen. In so doing, we shall select a set of realistic and implementable goals for economic and social policy relating to labor markets, globalization, and social conditions in both developed and less developed countries. These goals will not be made up in some kind of Tinbergenesque introspective exercise but will be brought from the working programs of international organizations, like the millennium development goals. In what follows, we intend to assemble a social preference function featuring dimensions that reflect the working program of the ILO (the International Labour Organization, an arm of the UN based in Geneva). As causal variables (“instruments” in Tinbergen’s parlance) we employ a range of economic and social policy variables actually being used in contemporary economic policy.

The present work draws on some remarkable developments in data analysis that, 60 years after Tinbergen’s pioneering account of the theory of economic policy, finally opens the door to meaningful empirical work that was so close to his heart. Following up on Tinbergen’s original intentions, we shall indeed maximize a generalized welfare function subject to constraints, drawing on the techniques of data envelopment analysis (DEA). The calculations will be made for a large number of countries brought from all continents. Breaking with the received doctrines of economic equilibrium, however, DEA permits for some decision makers (here: countries) to fall short of the maximization of social preference. It is key to realize that real-world attempts at optimization are not necessarily successful, so that there may exist a gap between the idealized solution policy and actual performance. Optimization and the attainment of the optimal equilibrium point is thus not assumed but rather considered as a matter for empirical investigation.

Those countries that most effectively realize the goals formulated for economic policy together define an economic and social frontier — an effectiveness frontier of the selected social goal function. For those countries that fall short of the frontier, and thus are characterized by disequilibrium rather than equilibrium, the shortcomings (shortfall of goals or excessive use of instruments) will be calculated numerically. We shall assess the success of nations in reaching the three goals:

• decent work for men and women in the workforce,
• a fair globalization,
• international competitiveness.

These are all worthy strivings; they are continually discussed at international conferences and embodied in various ways in national legislation. They are all multi-dimensional and thus fall outside the confines of conventional economic theory and yet are of fundamental importance for understanding events on the international economic and social scene. All three of them also involve compromise: decent work is paid work but requires also acceptable work conditions, fair globalization means open borders but requires also protection for vulnerable industries, while competitiveness means productivity advantage but not at unlimited social cost.

For each such multi-dimensional goal complex we shall identify the frontier countries defining the “best” performance. For those countries that fall behind the frontier a numerical index of sub-effectiveness (an “effectiveness score”) will be calculated and the scope for possible improved performance will be evaluated.

Our investigation of Decent Work, as defined by the International Labor Office in Geneva, identifies sixteen out of 102 nations that define the envelope, headed by Denmark, the United States, Burkina Faso, and Jamaica. (Poor countries also need “peers” to define their best practice!) Rather attractively, the kingdom of Bhutan joins the group of peers, preaching the message of gross national happiness to the world!

Using the same data set, we identify eighteen nations that define the envelope for A Fair Globalization, as defined by the World Commission on the Social Dimension of Globalization [WCSDG, 2004a]. One of the goals entering our list of success criteria is the equality of the vertical income distribution (measured by one minus the Gini coefficient). Denmark still is on the list but several of the former winners now slip badly, among them the United States. More generally, our results prompt us to investigate the blessings and costs of free trade. In an expanded causal tree depicting the cause-effect relationships covering both Decent Work and A Fair Globalization at the same time, we continue the numerical analysis through a hybrid or two-stage procedure.

The World Economic Forum (WEF) kindly made available to us their extensive data base from which they calculate their regularly published, Global Competitiveness Index. However, the WEF more or less sidesteps the issue of the goals of national competitiveness policy, spending its efforts on enumerating and assessing all possible policy instruments (their twelve “pillars” of policy). Accordingly, our ranking of nations is at great variance with that of the Forum: The winners in their annual ranking list are those countries that have excellent reason to be competitive; our rankings reward those countries that actually perform more competitively than others.

Many countries reveal long-standing effectiveness deficits, some of them no doubt connected to internal strife, war, pestilence, or other national misfortunes — and others tied to turbulent growth. Also, as some countries go through rapid technological and social upheaval, they sacrifice short-term equilibrium. In such cases, effectiveness is a distant ideal and economic equilibrium theory is of little help. To conclude our investigation, trying to understand the prevalent presence of ineffectiveness, we survey some relevant elements of modern chaos theory and the mathematics of nonequilibrium orbits.

* * *

The core of Part I as presented in the three chapters 4, 5, and 6 consists of material brought from three papers [Thore & Tarverdyan, 2008; 2009; Cooper, Thore & Tarverdyan, 2010]. Our numerical calculations were this time, however, carried out with a much larger data set (111 nations rather than the earlier 52 nations). Chapter 7 presents a study of the international competitiveness of 101 nations, drawing on statistical data collected by the World Economic Forum. This material is published here for the first time. Throughout our joint work, Thore has been responsible for the written text; Tarverdyan contributed her extensive knowledge of the work of international organizations and was responsible for the acquisition, assembly, and processing of all data.

Chapter 1

The Theory of Economic and Social Policy Reconsidered

1.1 International Initiatives

A series of international accords has recently brought attention to the wide variety of social and economic problems facing nations in a world of globalization, economic development (or lack of development), and scarce resources. The need for policy coherence, coordination, and cooperation has intensified during past years. A notable event occurred with the formulation of the United Nations Millennium Declaration (New York) [2000]. It laid down a series of “millennium development goals” (MDGs), giving a sharper focus and impetus to the international quest for social and economic development.

The Millennium Declaration resolved “to ensure greater policy coherence and better cooperation between the United Nations (UN), its agencies, the Bretton Woods Institutions and the World Trade Organization, as well as other multilateral bodies, with a view to achieving a fully coordinated approach to the problems of peace and development.” The development community reached a consensus around the shared objectives of achieving the MDGs and the partnership between developed and developing countries:

• the developing countries are expected to focus on good governance, sound economic and social policies, and robust institutions that will help mobilize resources from all sources — public, private, foreign, and domestic;
• the developed countries are expected to reduce barriers to trade and promote an international economy more conducive to growth and development, to provide adequate aid resources in the form of private capital flows, to provide additional development assistance to support those efforts, and (under the Heavily Indebted Poor Country Initiative) help the developing world to ease the debt burdens and support them in effective management of their external debts (see also UN Department of Economic and Social Affairs [2004]).

The MDGs include poverty reduction, full and productive employment and Decent Work for all, educational goals, health goals, and other measures. The Monterrey Consensus of the UN [2004] International Conference on Financing for Development emphasized the need for coherent action of all stakeholders in the international community, including the need to enhance the efficacy of macroeconomic policies. The Millennium Declaration was followed by a report by Secretary-General Kofi Annan titled, Road Map towards the Implementation of the United Nations Millennium Declaration [UN, 2001], which brought together the goals listed in t...

Table of contents

• Cover Page
• Title
• Copyright
• Dedication
• Foreword
• Preface
• Introduction
• Contents
• Part I. The Economic and Social Policy of Nations: Achievements & Failures
• Part II. A Geneva Consensus
• Part III. Remembering Times Past and Honoring Four Great Scholars
• References
• Index