The continuing deadly escalation of the Israeli-Palestinian conflict threatens to become an all-out war with devastating consequences for both communities. What makes this situation particularly tragic is the fact that the formula and the will for negotiating a mutually satisfactory agreement to end the conflict remain in place.The negotiators were able to come very close to agreement in Taba last January, and the two populations are still open to a negotiated agreement if they could be convinced that the other side can be trusted.The breakdown in negotiations and the resulting cycle of violence led to the reemergence on both sides—in classical mirror-image fashion—of the belief that there is no negotiating partner on the other side, that “they” do not want to make the compromises required for peace, and that the only language “they” understand is force. Counteracting these beliefs requires a clear endorsement by the leadership on each side of a political solution that would meet the basic needs of the other. The dynamics of escalating violence prevent the leaders from speaking the words and taking the actions that would reassure the other, lest they be seen as weak and yielding to violence. Moreover, Ariel Sharon's strategy and Yasser Arafat's tactics make it particularly difficult for them to make an unambiguous commitment, in advance, to the kind of political outcome on which the resumption of fruitful negotiations now depends.Under the circumstances, outside parties, especially the United States, can make a unique contribution, not only by encouraging the parties to resume serious negotiations but by offering a vision of the broad outlines of the final agreement to which these negotiations must be directed. Following up on Secretary of State Colin Powell's constructive policy address, this vision should be based on the historic compromise that was implicit in the Oslo agreement.Anchored in UN Resolutions 242 and 338, this compromise has the added advantage of international legitimacy. It is predicated on an agreement to end the conflict by sharing the land both peoples claim, through the establishment and peaceful coexistence of two states, in which the two peoples can fulfill their respective rights to national self-determination, give political expression to their national identities, and pursue independent, secure, and prosperous lives.The vision of such a historic compromise must spell out three implications for resolving outstanding issues in the conflict. Each of these implications is painful to one or both parties, but they follow directly from the essence of the compromise.First, the historic compromise must enable Palestinians to establish an independent, sovereign state consisting of the West Bank and the Gaza Strip. To be viable and governable, the state must have contiguous territory within each of its two units and a secure corridor between them. It cannot, therefore, accommodate Israeli settlements with extraterritorial rights, a separate network of roads, and protection by Israeli forces.Second, the historic compromise implies Palestinian acceptance of the legitimacy of Israel as a Jewish-majority state (with full democratic rights for its Arab minority). Therefore, to maintain its Jewish character and its cohesion, Israel cannot accommodate an automatic, large-scale return of Palestinian refugees to the country.Third, the historic compromise calls on the two peoples to share Jerusalem, as an open city, containing the capitals of both states and ensuring full access to the holy sites of all religious communities.Within the broad parameters of these three principles, it is necessary and possible to negotiate mutual accommodations central to the narratives and the internal cohesion of the two societies. Thus, on the issue of settlements, negotiations need to take cognizance of the domestic turmoil that dismantling large numbers of settlements would create for Israel and consider exchanging small segments of the West Bank that have a heavy concentration of Israeli settlers for Israeli territory of equal size and value.On the issue of refugees, recognizing its centrality to the Palestinian identity and narrative, negotiations need to agree on language whereby Israel would acknowledge its share of responsibility and express regret for the plight of the refugees and on a comprehensive program of resettlement and compensation for refugees, including return of a limited number to Israel. On the issue of Jerusalem, negotiations need to work out arrangements for sharing sovereignty and use of both holy sites and public spaces vital to both communities and for providing governance, security, and municipal services on a citywide basis.Formulas for dealing with many of these issues in a mutually satisfactory way have already been explored in previous negotiations, although further efforts are required to shape them into a comprehensive package. That work must and can be done by the parties themselves. Where the United States can make an indispensable contribution is in bringing the parties back to the negotiating table by offering a broad vision of the historic compromise toward which the negotiations must be directed.
Market exchange rates can move around a lot, particularly but not only around currency crises. For this reason, they can properly be averaged over several years for international comparisons. However, the Chinese yuan has been fixed at roughly 8.3/dollar since 1994. In my view it is modestly undervalued, as evidenced by the steady growth of China's foreign exchange reserves, the result of central bank market intervention to keep the yuan from appreciating. China has also had a significant trade surplus in recent years. However, it still maintains controls on outflows of domestic capital. And it is about the enter the WTO, following which under the access agreements China must reduce its import barriers much more than its trading partners do. Many Chinese are fearful of withering foreign competition. If these fears prove to be valid and widespread, the yuan might have to depreciate over the next five years, although my guess is the required depreciation will be modest, e.g. 10-15 percent. Moreover, WTO membership may result in more inbound foreign investment, thus mitigating the required depreciation or even eliminating it altogether. The bottom line is this: the market exchange rate provides a much better basis for converting Chinese GDP into dollars than does some artificially constructed ppp rate. Following the pattern of Japan and Korea, the real exchange rate of the rmb might appreciate over time, as China develops, but that process will occur at a modest rate, over decades.
Paper presented at Congress public hearing "Chinese Budget Issues and the Role of the PLA in the Economy," December 7, 2001.Download PDF
This paper considers policies of the industrialized countries, as they pertain to crises in emerging markets. These fall into three areas: (1) their own macroeconomic policies, which determine the global financial environment; (2) their role in responding to crises when they occur, particularly through rescue packages, which have three components —reforms in debtor countries, public funds from creditor countries, and private sector involvement; and (3) efforts to reform the international financial architecture, with the aim of lessening the frequency and severity of future crises. A recurrent theme is the tension between mitigating crises that occur, and the moral hazard that such efforts create in the longer term. In addition to reviewing these three areas of policy, we consider the institutions through which the more powerful countries exercise their influence. We conclude with a discussion of the debate over the sins of the International Monetary Fund, and proposals for reform.
The terrorist attacks that destroyed the World Trade Center and damaged the Pentagon triggered the most rapid and dramatic change in the history of U.S.foreign policy. On September 10, 2001, there was not the slightest hint that the United States was about to embark on an all–out campaign against "global terrorism." Indeed, apart from an explicit disdain for certain multilateral agreements and a fixation on missile defense, the foreign policy priorities of George W. Bush and his administration were not radically different from those of their predecessors. Bush had already endorsed continued NATO expansion, reluctantly agreed to keep U.S. troops in the Balkans, reaffirmed the existing policy of wary engagement with Russia and China, and called for further efforts to liberalize global markets. The administration's early attention focused primarily on domestic issues, and newinternational initiatives were notably absent.This business–as–usual approach to foreign policy vanished on September 11. Instead of education reform and tax cuts, the war on terrorism dominated the administration's agenda. The United States quickly traced the attacks to al–Qaeda — the network of Islamic extremists led by Saudi exile Osama bin Laden — whose leaders had been operating from Afghanistan since 1996. When the Taliban government in Afghanistan rejected a U.S. ultimatum to turn over bin Laden, the United States began military efforts to eradicate al–Qaeda and overthrow the Taliban itself. The United States also began a sustained diplomatic campaign to enlist foreign help in rooting out any remaining terrorist organizations "with global reach." U.S.officials emphasized that this campaign would be prolonged and warned that military action against suspected terrorist networks might continue after the initial assault on al–Qaeda and its Taliban hosts.This article analyzes how the campaign against global terrorism alters the broad agenda of U.S.foreign policy. I focus primarily on the diplomatic aspects of this campaign and do not address military strategy, homeland defense, or the need for improved intelligence in much detail. These issues are obviously important but lie outside the bounds this essay.I proceed in three stages. The first section considers what the events of September 11 tell us about the U.S. position in the world and identifies four lessons that should inform U.S. policy in the future. The second section explores how the campaign on terrorism should alter the foreign policy agenda in the near–to–medium term: What new policies should the United States pursue, and what prior goals should be downgraded or abandoned? The third section addresses the long–term implications, focusing on whether the United States will be willing to accept the increased costs of its current policy of global engagement. I argue that this decision will depend in part on the success of the current campaign, but also on whether the United States can make its dominant global position more palatable to other countries.Published in International Security 26, no. 3 (Winter 2001/02): 56-78.
This article introduces a theory of ethnic war. It argues that the likelihood of ethnic violence is largely a function of how the principal antagonists—a state and its dissatisfied ethnic minority—think about territory. Attempts to negotiate a resolution short of war will fail when: (1) the ethnic minority demands sovereignty over the territory it occupies, and (2) the state views that territory as indivisible. Ethnic war is less likely to break out if only one of these conditions is met, and very unlikely if neither condition is met. The article first introduces a theory to explain ethnic war. It then presents a statistical analysis of the theory's key variables and tests the theory's causal logic by comparing Moscow's interactions with Tatarstan and with Chechnya. The article concludes with three implications: ethnic groups are rational; that certain settlement patterns will not be amenable to outside intervention; and partition may not be a good policy option to end violence.
Toft, Monica Duffy. "Indivisible Territory and Ethnic War." Working Paper 01–08, Weatherhead Center for International Affairs, Harvard University, December 2001.Download PDF
We study the organization of federations – or international unions – which decide together the provision of certain public goods. The benefit of centralization depends on the internalization of the spillovers, that of decentralization on the adaptability to local differences. We individuate as an optimal institutional design a form of fiscal federalism based on decentralization of expenditures and a system of subsidies and transfers between countries. Since this solution can be politically unfeasible, we study institutional compromises between a centralized federation and a decentralized one. "Flexible unions" and federal mandates in which both the state and federal levels are involved in providing public goods are typically superior to complete centralization and politically feasible. Finally, we study the effects of a qualified majority voting rule in a centralized system: we find that it can be a useful device to correct a bias toward "excessive" union–level activism.
We construct a set of indicators to measure the policy–making role of the European Union (European Council, Parliament, Commission, Court of Justice, etc.), in a selected number of policy domains. Our goal is to examine the division of prerogatives between European institutions and national ones, in light of the implications of normative models and in relation to the preferences of European citizens. Our data confirm that the extent and the intensity of policy–making by the EU have increased sharply over the last 30 years. Such increase has taken place at different speeds, and to different degrees, across policy domains. In recent times the areas that have expanded most are the most remote from the EEC's original mission of establishing a free market zone with common external trade policy. We conjecture that the resulting allocation may be partly inconsistent with normative criteria concerning the assignment of policies at different government levels, as laid out in the theoretical literature.
This article starts from a very simple (and unoriginal) premise: actors who enter into a social interaction rarely emerge the same. For mainstream international relations theories this is at one and the same time an uncontroversial statement and a rather radical one. It is uncontroversial because mainstream IR accepts that social interaction can change behavior through the imposition of exogenous constraints created by this interaction. Thus, for instance, neorealists claim that the imperatives of maximizing security in anarchical environment tends to compel most states most of the time to balance against rising power. Contractual institutionalists also accept that social interaction inside institutions can change behavior (strategies) in cooperative directions by altering cost–benefit analyses as different institutional rules act on fixed preferences.
The UK political system has long exemplified ?majoritarian? or ?Westminster? government, a type subsequently exported to many Commonwealth countries. The primary advantage of this system, proponents since Bagehot have argued, lie in its ability to combine accountability with effective governance. Yet under the Blair administration, this system has undergone a series of major constitutional reforms, perhaps producing the twilight of the pure Westminster model. After conceptualizing the process of constitutional reform, this paper discusses two important claims made by those who favor retaining the current electoral system for Westminster, namely that single–member districts promote strong voter–member linkages and generate greater satisfaction with the political system. Evidence testing these claims is examined from comparative data covering 19 nations, drawing on the Comparative Study of Electoral Systems. The study finds that member–voter linkages are stronger in single member than in pure multimember districts, but that combined districts such as MMP preserve these virtues. Concerning claims of greater public satisfaction under majoritarian systems, the study establishes some support for this contention, although the evidence remains limited. The conclusion considers the implications of the findings for debates about electoral reform and for the future of the Westminster political system.
The "new economy" has become a buzzword to characterize the American economy, with positive connotations but imprecise meaning. Sometimes it is used to refer only to selected high technology sectors, specifically computers, semiconductors, software, and telecommunications. But usually the term implies significant changes in the US economy as a whole. At its most dramatic, the term suggested that the traditional business cycle has been banished, inflation and unemployment have been brought forever under control, US long–term growth rates have increased significantly, and the high–value stock market was not over–valued and indeed would continue to rise. More modestly, it suggests that the structure of the US economy has changed fundamentally, with the implication, inter alia, that monetary and fiscal measures affect the economy differently from the way they did in the past. Finally, it suggests that US productivity growth has returned to, or at least toward, the high levels it enjoyed in earlier years, before the slowdown of the mid–1970s. This paper will discuss the factual bases for conjecturing that the United States might indeed have a "new economy," review the controversies and evidence surrounding that claim, and suggest how the emergence of a "new economy," if indeed there is one, might affect economies elsewhere in the world, including the Asia–Pacific region.
While governments have access to multiple tax instruments, studies of the effect of tax policy on the location of multinational investment typically focus exclusively on host country corporate income tax rates and their interaction with home country tax rules. This paper examines the impact of indirect (non–income) taxes on foreign direct investment by American multinational firms, using confidential affiliate–level data that permit the introduction of controls for parent companies and host countries. Indirect tax burdens significantly exceed foreign income tax obligations for these firms and appear to influence strongly their behavior. Estimates imply that 10 percent higher indirect tax rates are associated with 1.3 percent lower assets, 3.1 percent lower property plant and equipment, and 1.6 percent smaller trade surpluses with parent companies. Corporate income tax rate differences have comparable effects. The estimated combined effects of indirect and income taxes are similar to earlier estimates of investment responses to income taxes, which raises the possibility that some of the effects commonly attributed to income taxes also reflect the impact of indirect taxes.
This essay presents what we believe to be the consensus among political scientists with regard to the analysis of the politics of international economic relations. The review we present is not intended to be exhaustive. We do not, for example, attempt to include the work of scholars who challenge the positivist approach that is assumed here. We believe that this survey does, nonetheless, reflect the principal focuses of North American scholarship in IPE. Most scholarship published in the principal journals of the profession and the sub–discipline, and most graduate training and research, are within the range of the theoretical and empirical topics and approaches presented here.
Census data for 1990/91 indicate that Australian and Canadian female immigrants appear to have higher levels of English fluency, education, and income (relative to natives) than do U.S. female immigrants. This skill deficit for U.S. female immigrants arises in large part because the United States receives a much larger share of immigrants from Latin America than do the other two countries. However, even among women originating outside Latin America, the proportion of foreign–born women in the United States who are fluent in English is much lower than among foreign–born women in Australia. Furthermore, immigrant/native education gaps are reduced but not eliminated by the exclusion of Latin American women from the analysis. In contrast, other evidence for men suggests that the gap in observed skills among male immigrants to the United States is completely eliminated when Latin American immigrants are excluded from the estimation sample (Borjas, 1993; Antecol, et al., 2001). The importance of national origin and the general consistency in the results for men (who are routinely subjected to the selection criteria of various immigration programs) and women (who are not) suggests that many factors other than immigration policy per se are at work in producing skill variation among these three immigration streams.
This paper, part of a multi–author project evaluating the evolution of theoretical paradigms in international relations (IR), evaluates the Liberal paradigm form a Lakatosian perspective. There is a distinct "Liberal" Scientific Research Program (SRP) in the study of international relations, based on three core assumptions. These Assumptions are shared by Ideational, Commercial and Republican variants of Liberal theory. The Liberal SRP is clearly progressive in the Lakatosian sense, that is, it explains a broad and expanding domain of empirical phenomena more accurately than competing research programs – and does so in such a way as to meet the specific Lakatosian criteria of "heuristic", "temporal" and "background theory" novelty. Liberal theory is thus among the most promising, perhaps the most fruitful and promising, of contemporary paradigms in IR theory. Yet legitimate doubts can be raised about the utility of Lakatosian theory as a means to evaluate research in IR. In particular, one might question its view that theories from competing paradigms are mutually excusive, which encourages one–on–one testing of unicausal theories, rather than estimation of the proper (and sometimes overlapping) scope of paradigms, or the construction of multi–paradigmatic syntheses. Given the current stage of IR theory, these two tasks may offer greater explanatory insight into world politics than unicausal theory testing. This conclusion does not undermine, however, the positive assessment of Liberal theory, which both supports clear empirical scope conditions and can play a foundational role in fruitful multi-theory syntheses.
Moravcsik, Andrew. "Liberal International Relations Theory: A Social Scientific Assessment." Working Paper 01–02, Weatherhead Center for International Affairs, Harvard University, April 2001.Download PDF
One dimension of global income inequality swamps all others, the inequality due to differences in living standards among nations. This is primarily the result of differential rates of national economic growth. This paper examines current conditions, then looks at how global inequality has evolved over the past 50 years. After an examination of the causal factors that affect this inequality, it engages in a few speculative observations about what the next half–century might bring.
The answer to the question posed in the title is "yes." Using a total of 128,106 answers to a survey question about "happiness," we find that there is a large, negative and significant effect of inequality on happiness in Europe but not in the US. There are two potential explanations. First, Europeans prefer more equal societies (inequality belongs in the utility function for Europeans but not for Americans). Second, social mobility is (or is perceived to be) higher in the US so being poor is not seen as affecting future income. We test these hypotheses by partitioning the sample across income and ideological lines. There is evidence of "inequality–generated" unhappiness in the US only for a sub–group of rich leftists. In Europe inequality makes the poor unhappy, as well as the leftists. This favors the hypothesis that inequality affects European happiness because of their lower social mobility (since no preference for equality exists amongst the rich or the right). The results help explain the greater popular demand for government to fight inequality in Europe relative to the US.
It appears likely that the number of currencies in the world, having proliferated along with the number of countries over the past 50 years, will decline sharply over the next two decades. The question I plan to pose here is: where, from an
economic point of view, should we aim for this process to stop? Should there be a single world currency, as Richard Cooper (1984) boldly envisioned? Should there remain multiple major currencies but with a much stricter arrangement among them for stabilizing exchange rates, as say Ronald McKinnon (1984) or John Williamson (1993) recommended? Building on Maurice Obstfeld and Rogoff
(2000b, d), I will argue here that the status quo arrangement among the dollar, yen, and euro (which I take to be benign neglect) is not far from optimal, not only for now but well into the new century. And it would remain a good system even if political obstacles to achieving greater monetary policy coordination (or even a common world currency) could be overcome. Again, this is not a paper on, say,
the pros and cons of dollarization for small and medium-sized economies, but rather on arrangements among the core currencies. Any blueprint for the future core of the world currency system involves some crystal-ball gazing. But at the same time, recent research in international macroeconomics offers several important insights that can help inform the discussion.
Ten years have passed since the publication of my book The Road to a Free Economy: Shifting from a Socialist System–the Example of Hungary. It was the first book in the international literature to put forward comprehensive proposals for the post–socialist transition. This paper sets out to assess the book as the author sees it ten years later.
Journal of Political Economy, 108, 663-679We build a model of child labor and study its implications for welfare. We assume that there is at trade–off between child labor and the accumulation of human capital. Even if parents are altruistic and child labor is socially inefficient, it may arise in equilibrium because parents fail to fully internalize its negative effects. This occurs when bequests are zero or when capital markets are imperfect. We also study the effects of a simple ban on child labor and derive conditions under which it may be Pareto improving in general equilibrium. We show that the implications of child labor for fertility are ambiguous.