QUESTIONS FOR CAMPOS AND ROOT

1. What were the consequences for ministers who failed to meet goals?

2. Why are pensions important for bureaucratic quality?

3. Why is a large number of political appointments at the top of a bureaucracy a bad idea?

4. Would Campos and Root agree with the statement, “The more regulations, the more bureaucrats, the more corruption”?

CONTRASTING VIEWS OF ECONOMIC GROWTH Washington Consensus

view of Asian success. Open to trade, build

coalitions with business, repression of labor.

David Waldner, 1999 State Building and Late Development

Stephan Haggard, 1990 Pathways from the Periphery

Peter Evans, 1995 Embedded Autonomy

THE OTHER STORY Commitment to shared growth. Business AND labor kept in check,

profits are shared, open to exporting but have tariffs in place for ISI.

Facts are consistent with those presented in the other books.

Campos and Root, 1996 The Key to the Asian Miracle.

Nancy Birdsall, Dani Rodrik, Arvind Subramanian, 2005 “How to Help Poor Countries”, Foreign Affairs. (available in Proquest)

Joseph Stiglitz, 2002 Globalization and its Discontents

KEY TO SUCCESS Highly unorthodox and

creative policies. Did not follow Washington Consensus policies. More like a defensive mercantilism.

Economic bureaucracy may have been a deciding factor. High performing Asian economies (HPAEs) have a history of quality bureaucracies going back centuries. Bureaucrats, government employees are accorded great respect.

CAMPOS AND ROOT How to create a “competent, powerful, but

accountable group of bureaucrats.” Primary issue: Limited disparity between public

and private compensations. $2 mil salary 2011 2011 keep $1,334,188 tax $665,811 1979 keep $702,425 tax $1,297,573

Compare to $50,000 2011 taxed $6,650 1979 taxed $1,191

Low income bureaucrats easier to bribe/manipulate. Government work as resume builder – regulation of businesses you hope to work for.

FOUR STEPS Convince bureaucrats that shared growth is the

“overriding objective”. “Attract competent individuals” by establishing “merit-

based rules and procedures” and “relatively attractive compensation schemes.”

Allow some technical independence and help “resist demands of interest groups.”

An oversight mechanism to ensure accountability to leadership.

NIH breaking all the rules.

COMMITMENT TO SHARED GROWTH

Consequences for those who undermine the shared growth objective.

Imprisoned chaebol leaders and ministers fired if goals were not met.

MERITOCRACY Rigorous interviews, exams, and graduate degrees.

Degrees without the other not as effective. Some seniority, but possibility for early promotion for those

who excel. Pool of applicants “influenced by the compensation that

government offers.” Difference in public and private sector employment

intentionally kept low. Toyota's top executive, Hiroshi Okuda, earned $903,000 in 2006. Ford's new CEO, Alan Mulally, got $27.8 million in salary and

bonus in his first few months on the job, including an $18.5 million signing bonus.

Top university graduates “compete intensely for public sector slots.”

COMPENSATION BEYOND INCOME Secure employment, shorter work

week, vacation time. Generous pension benefits for

consumption smoothing. Don’t need as much income for saving, but it is only there if they aren’t fired along the way.

FEWER POLITICAL APPOINTMENTS “Heckuva job Brownie.” The textbook talks about the United States as

having political appointees at substantially lower levels than most other countries. Specifically, the US has political appointees in the positions of undersecretaries and assistant secretaries while other countries have career civil servants in these positions. The US has around 3000 political appointees while the UK has about 100.George Bush’s Director of the Federal

Emergency Management Agency (FEMA) Michael Brown. Judges and Stewards Commissioner for the International Arabian Horse Association from 1989-2001. Resigned in disgrace following the mismanagement of Hurricane Katrina. Qualifications: college roommate and drinking buddy of Bush’s campaign manager and first FEMA director.

PERCEPTIONS OF BUREAUCRATIC PERFORMANCE John Locke refers to a “power always in being”.

Political appointees at the top can step in and make substantial changes to how an agency enforces legislation previously put in place. During the Reagan Administration, with a Democratic Congress, substantial changes were made throughout the agencies as Reagan pushed for deregulation.

Econ professor once talked about the number of students in France who sought to work for the government. Suggestion was that France had a bloated bureaucracy and these individuals wanted to live on easy street. Reality is that in other countries civil service is highly competitive and civil servants are the “cream of the crop” and are respected accordingly. There is also less income disparity in those countries.

TWO TYPES OF INFORMATION

INDEPENDENT AUTONOMOUS AGENCIES

High level of bureaucratic turnover during the Reagan and Bush administrations. Was this dissatisfaction, higher compensation levels in the private sector, political pressure from elected officials, or all of the above?

ITEMS OF NOTE Inflation low “except for the years

surrounding the two oil crises.” Page 157 (stagflation was worldwide)

Footnote page 157 “Capital markets stand ready to take advantage on inconsistencies resulting from bad macroeconomic management.” Stiglitz explores this relationship in

Globalization and its Discontents. Asian economic crisis as direct result of opening domestic capital markets.

Are capital markets currently taking advantage of inconsistencies resulting from bad macroeconomic management in the United States?

CONTROL AND ACCOUNTABILITY Budget specific – details and contents

of the budget are not subjected to legislative scrutiny – no pork available.

Control of budget limited to a small set of experts instead of diffused through a number of agencies. Greater accountability for success or failure.

In US the President has no control over the Fed or Congress, and limited control over the bureaucracy (depending on audacity). Bureaucracy has no influence on interest rates and revenues.

Who are the NIH and the FDA accountable to? The EPA? The SEC?

INDEPENDENT CENTRAL BANK The Federal reserve is staffed by individuals selected by

member banks. The board are political appointees who frequently come from the reserve system or member banks. Fed may be independent of elected officials, but are they independent of member banks?

Chung Hee Park government maintained control of central bank as primary method of ensuring shared growth. High interest rates encouraged saving by workers, and was used as leverage to gain cooperation by chaebols (pronounced chebbuls) Also enabled control over foreign exchange and maintaining autonomous monetary and fiscal policy.

GOVERNMENT CONTROL Potential for corruption, but… Accountability mechanisms.

Independence and autonomy, but could be fired without appeal. Hong Kong turns corruption around.

CHAPTER 8 – THE BUREAUCRACY Opening discussion: Old textbook talks about the underwear bomber and

mentions the name Obama five times when discussing the intelligence failure. Terms like “his intelligence agencies” suggest that the President is responsible for anything done within the bureaucracy.

The success of getting Osama Bin Laden mentions the name Obama only once. Very little credit is given to his insistence that analysts focus on finding Bin Laden and the politically risky move of sending the SEALS in. The opening seems to illustrate the bureaucracy as acting autonomously and informing the President once the mission has been accomplished.

HOW IMPORTANT IS BUREAUCRACY? “The power always in being” – John Locke Most Americans fail to appreciate the potential power of

the bureaucracy, or how their decisions affect our lives. When we discuss effective and ineffective governments,

the basis can often be found within the bureaucracy…are they the best and the brightest committed to a professional career of serving the public, or are they simply punching a time card until they retire or a better economic opportunity opens up?

They make the bulk of our rules and serve as the enforcers of federal legislation.

This may well be the most crucial leg of the iron triangle and the greatest opportunity for eliminating subgovernments and revolving doors.

IMPLEMENTATION OF NEW LAWS1. Funding by Congress: this may be passed as a part

of the initial bill or may require inclusion in a separate budget measure. Insufficient funding may leave the new bill relatively meaningless. “Where the laws cannot be executed it is all one as if there were no laws.” (John Locke)

2. Development of regulations and laws intended to achieve the desired goals. Corporations and industries affected by these regulations will be quick to challenge them in court. This is where the DC Circuit Court has so much power.

3. Evaluation of whether the programs are having the desired effect. Do they need to be tweaked a little, changed dramatically, or removed altogether?

19TH CENTURY SPOILS SYSTEM We have talked about the period of the late 19th century (1800s) in

which tariffs as a revenue generator created massive surpluses. These surpluses were used to provide civil service employment, government contracts, and other political favors to political supporters.

The spoils system was the ability of the party in power to shower supporters with government largesse. The specific rewards are known as patronage.

Over time, the ineffective and corrupt spoils system was replaced with a more effective merit system.

PENDLETON ACT Civil Service Reform Act of 1933 Civil Service Commission until 1978 Replaced by the US Office of Personnel Management

(OPM) Investigating branch (background checks and security

clearances) of OPM privatized in 1996 to create USIS. Purchased by Carlyle Group about 2000. Carlyle Group http://

en.wikipedia.org/wiki/Carlyle_Group Think of the concept of gatekeeping. Would it seem

to be a conflict of interests for an equity firm to be playing a role in the hiring of regulators that will be regulating their firms? What about the conservative political actors both foreign and domestic?

INDEPENDENT REGULATORY COMMISSION During the late 19th century corruption, railroads had

inordinate amounts of power backed up by business friendly courts. Congress took it into their own hands to create the first independent regulatory commission in the Interstate Commerce Commission (ICC). While this calmed anti-railroad fervor for a brief time, the ICC was staffed by “railroaders and lawyers sympathetic to them.”

Congress sought to create an agency independent of the president and the spoils system, only to find that appointments still made the system responsive to the desires of the executive and the trusts.

The ICC was initially ineffective for the reason of both corrupt political appointees, but also the lack of an enforcement mechanism outside of the business friendly courts of the time.

TEDDY ROOSEVELT Through the economic booms and

busts of the 1890s (four recessions that decade), the railroads eventually became the property of financial trusts who now had even greater levels of capital accumulation and political power.

Teddy Roosevelt pushed a populist message and came to be seen as “the Trustbuster”. Teddy Roosevelt was the first of three Presidents in the “Progressive era” (Taft and Wilson).

GROWTH OF GOVERNMENT The book suggests that more revenues were

generated through income taxes, but in reality surpluses are generated through tariff systems. Why? Because powerful interests push for higher tariff rates and against higher income and corporate taxes.

The graph in the book would make you think that the government is growing out of control, but this is what graphs look like when we look at population, GDP, trade imbalances or other things that increase with the growth of population which increases exponentially.

GROWTH OF GOVERNMENT

THE BIG IN BIG GOVERNMENT (PG 259) Number of government employees

have decreased while government expenses have increased. Many services previously provided by government have been privatized.

Blackwater employee $1,222.00 a day. Six times what it would cost for a soldier.

We had a stronger economy and a more efficient government when more individuals were employed by the government with fewer no bid contracts to political cronies.

THE MODERN BUREAUCRACY “The national government differs from private business in

numerous ways. Governments exist for the public good, not to make money.

Businesses then, are evaluated by the profits they make, or the difference between what it costs to produce a good or service and the amount that they charge consumers for that good or service. Governments, on the other hand, are evaluated based on their efficacy, or how many individuals are provided access to the good or service at the lowest cost to both the consumer and the government.

As both have significantly different missions and goals, it would follow that running a government like a business would be counterproductive. Whereas the business would want to create shortages to increase revenues and profits, the purpose of government is to reduce shortages where the market fails to provide adequate supplies to meet the needs of society.

DATA FROM CAMPOS AND ROOT Politically effective bureaucracies have

fewer political appointees at higher levels.

ACCOUNTABILITY Campos and Root also talk about the effectiveness of the

East Asian economic bureaucracies being based on the immediate removal of ineffective bureaucrats, directors, and ministers. In the US, higher level bureaucrats are difficult to remove while lower level bureaucrats can be disposed of relatively easily. We saw the firing of US attorneys from the Justice Department, but no consequences for the Attorney General regarding questionable practices.

http://www.youtube.com/watch?v=7IBvZlRqOTw The textbook talks about Cabinet secretaries as being able

to be removed by the president alone. This is not accurate. The Secretary of War under the Grant Administration resigned rather then face impeachment. The same can be said of Andrew Mellon, the Treasury Secretary under Harding, Coolidge, and Hoover whose economic advice led to the Great Depression.

THE EFFECT OF PRIVATE CONTRACTING

The example given in the textbook regarding private contracting in Iraq is being played out in bureaucracies in the US system. Consistent with the theories of Campos and Root, we find effective bureaucrats lured away by compensation packages by the private sector. The bureaucracy then, with limited resources must compete with the private sector for quality workers. Effective regulators can be (and often are) offered employment by the businesses and industries they regulate.

Reference to Inside Job (2010)

4 GENERAL TYPES OF AGENCIES Cabinet departments – Complete with

Secretaries who make up the president’s cabinet. Depts. Of State, Defense, Labor, etc. The formal cabinet also includes: VP, chief of staff, ambassador to the UN, and the heads of the EPA, OMB, USTR, and the Council of Economic Advisors.

4 GENERAL TYPES OF AGENCIES Independent Executive Agencies –

Outside the jurisdiction of cabinet departments. Most perform services rather than regulatory functions. CIA, FDIC, FEC, GSA, NASA, Peace Corps, SBA, USPS

4 GENERAL TYPES OF AGENCIES Independent Regulatory Commissions –

developed by Congress, independent of cabinets, regulatory function. NLRB, FEC, FCC, SEC, OSHA, FAA

4 GENERAL TYPES OF AGENCIES Government Corporations –

Developed to provide goods and services where the private sector has failed to do so. Amtrak, FDIC, TVA, Fannie Mae, and the Corporation of Public Broadcasting. These types of corporations come into being when there are high up front costs with little promise of a return. When these investments turn profitable, there is typically political pressure to turn the corporation over to private investors.

RECENT CHANGES Federal employees have

been allowed greater participation in the electoral process. This strengthens “iron triangle” relationships. This also takes a step back toward the spoils system of the 19th century.

IRON TRIANGLES The textbook

states,”Today, iron triangles no longer dominate most policy processes.”

Issue networks is a polite way of saying the same thing.

What do you think? http://www.flickr.co

m/photos/7371117@N05/4200949786/

Inside Job

ADMINISTRATIVE DISCRETION Prevents Congress from micromanaging the

bureaucracy. Legislation that is passed, if it is too explicit in discussions of implementation can lead to unintended consequences, inefficiencies, and insurmountable obstacles of red tape.

Legislation is often vague, suggesting basic goals and methods for achieving those goals.

Administrative discretion then allows a bureaucracy to utilize their expertise to implement policies that will best achieve those goals.

This works in theory with a nonpartisan meritocracy, but can be subject to abuse with a corrupt bureaucracy.

ADMINISTRATIVE DISCRETION (COMPONENTS)

Rule-making: “a quasi-legislative process that results in regulations that have the characteristics of a legislative act.” This is commonly referred to as administrative law. For example: OSHA and EPA are given broad authority to protect the public from negative externalities. The rules they make to provide that protection has the force of law. Congress does not provide every rule as they lack the technical and institutional knowledge required to best achieve these goals. The people at the EPA and OSHA have that knowledge.

Administrative adjudication: “a quasi-judicial process in which a bureaucratic agency settles disputes between two parties in a manner similar to the way courts resolve disputes.” Where rule-making is proactive dealing with a broader population, adjudication is reactive to specific cases. While a business may be in compliance with the letter of the law provided through rule-making, an agency can find them to be in contradiction of the spirit of the law in application.

ADMINISTRATIVE DISCRETION It could be argued that the agency is acting as both

judge and jury in a case before them, and that adjudication could be interpreted as an ex post facto law. In SEC v. Chenery Corp. (1947) the Supreme Court supported the rationale behind administrative adjudication. By making rules against any potential eventuality, agencies would make rules that were too rigid for ready compliance. An issue in front of an agency may be so specialized in nature that it was impossible to foresee as a potential problem. If regulations become so detailed as to cover any possible eventuality, the rulebook would become so cumbersome as to being unmanageable by either the businesses regulated or the regulators themselves.

US COURT OF APPEALS FOR THE DC CIRCUIT With exception of SCOTUS, probably the most

important of the courts. They deal with administrative law. A business-friendly court can do a great deal to limit the effect of rules developed to enforce laws on corporations.

Four of the current nine Supreme Court justices came from this Court including the Chief Justice John Roberts.

Eleven full-time justices: Current make-up has 1 justice appointed by GHW Bush, 3 appointed by Clinton, 3 appointed by GW Bush, and 4 vacancies (Obama nominees have been filibustered, last confirmation 2006). 6 part-time justices include 1 appointed by Carter, 4 appointed by Reagan, and 1 appointed by GHW Bush.

ANALYZING VISUALS (FROM OLD TEXT) Does the federal government have a legitimate interest

in improving levels of education? The textbook chooses not to discuss primary issues that have long provided justification for public education. The charts below demonstrate what are often considered to be the two most important effects of an educated population: democratic participation (best political argument) and economic growth (best economic argument).

CONGRESSIONAL POWER OF THE PURSE “Money can be a powerful tool to

coerce bureaucrats to make particular policies.” Similarly, a congressman who feels that a regulatory agency is being too aggressive in their pursuit of businesses can deprive the agency of the resources it needs to effectively regulate.

Current issues: eliminate the IRS even though FY2012 ROI = 214:1, eliminate EPA, eliminate DOE, financial regulation agencies underfunded.