Nurul Islam makes some interesting observations about whether outside policy advice is likely to affect policy outcomes.

Based on his experience, he argues that advice to politicians should be offered only when it is solicited, and it is more likely to be solicited when politicians are out of office.

A forthcoming study which I edited, ‘Policy Efficiency in South Asia’, offers insights in the form of theoretical arguments and case study evidence on how policy advice and systematic policy reviews have affected policy outcomes in South Asia.

The earlier experiences of reform in Latin America and Eastern Europe suggested that strong success factors were visionary leadership, a strong political base and a coherent economic team.

The South Asian case studies confirm the importance of visionary leadership. Where visionary leaders have been able to assemble a strong and coherent team, the reforms have tended to be better thought out and more rigorously implemented, contributing to their success and longevity. But the successful reforms in South Asia have rarely been the product of a strong political base. Politics has constrained the reform process, but not prevented it.

In South Asia, an additional success factor has been good information and analysis regarding reform options. There are also instances where governments have agreed to delegate tasks to experts and to impose rules in order to overcome commitment problems or to counter undue political opportunism. In some cases, advisors have been able to offer new assignments of policy targets and instruments, thereby allowing politicians the opportunity to delegate questions of efficiency (especially when difficult) while retaining power over redistribution.

In India, the lengthy and relatively open processes of consultation and policy debate has contributed to policy reform, in part by making information available to opposition parties and by allowing new ideas to be gradually co-opted into the existing consensus development model.

The South Asian experience shows how the political climate can condition and constrain policy efficiency. But even in difficult political circumstances, there have been institutional strategies that have helped to ensure that at least some reforms have moved off the drawing board.

Indeed, it has been through a process of policy review and analysis, involvement of stakeholders and coalition building that South Asian governments have been able to sustain reform efforts in the absence of a strong political base. Coalition governments have sometimes injected a useful amount of pragmatism, but high quality policy analysis and public debate have also played a vital role.

Yet weakness has sometimes been evident in the formulation and analysis of the policy proposals themselves. And academics and think tanks have sometimes been ‘missing in action’ in providing objective, independent reviews and helping to manage vested interests (for example, in Indian trade policy making).

The more active involvement of academics and think tanks can be a particularly useful counterweight to an overly politicised bureaucracy. The academics and think tanks do not need to appeal to or ‘educate the public’ in a populist fashion — Pakistan’s experience shows that this is not sufficient to sustain reforms. What is needed is to inform opinion makers and influential people of all political persuasions, thereby raising the level of debate.

Politicians may not always be receptive. But ideas do have influence, as some of the case studies show. With the power of ideas, reforms can be initiated and sustained even by politicians who have a weak political base. This is the powerful message that South Asia’s reform experience can offer the rest of the world.

If regional cooperation is to improve policy efficiency it should focus special attention on building the technical and strategic policy review capacity of institutions such as thinks tanks and academia.

Philippa Dee is Adjunct Associate Professor at the Crawford School of Economics and Governance, The Australian National University.

1. How to improve Australia’s Asia literacy
2. Prime Minister Najib – Fiscal discipline and efficiency for Malaysia first!
3. An uncertain future for policy reforms in South Asia

The Doha Development Round of World Trade Organisation trade negotiations is in deep trouble and could become the first Round to fail.

What will happen if Doha fails?

If Doha is indeed all about agriculture, then not much will have been lost from a producer’s perspective, given current world food prices. And we will still have the WTO rules (dispute settlement mechanism and enforcement) though vastly weakened because of damage to the institution of a failed Round. But if Doha can’t do agriculture, then it surely can’t do behind-the-border reform. And the multilateral system will be further weakened with countries chasing more free trade agreements (FTAs).

The EAF this week features a series of essays on Doha led by Richard Baldwin and Simon Evernett who warn that ‘2011 is a fork in history’s road’ and that ‘if the US and China are unwilling to break the deadlock in 2011, no deal is likely before 2020’.

That matters. A failed Doha ‘would damage the multilateral system in an era when multilateral cooperation is in short supply’ as Peter Drysdale says. Drysdale goes on to argue that it is important since ‘The multilateral trading system is the economic sinew that constrains the exercise of international political muscle in ways that damages global wellbeing and inflicts national self-harm.’

The lack of progress on Doha signals a retreat from the days when international economic diplomacy helped diplomacy on other fronts — especially security. That does not bode well for relations between countries (read China and the United States) with different political systems that would tend towards conflict rather than cooperation without the positive sum economic diplomacy underlying the zero or negative sum security dialogues and interactions.

Ed Gresser explains that Doha is an example of a larger international system problem. Put bluntly, it is an example of the US being prepared to do a deal with anyone but China. We see the signs of this with the Trans-Pacific Partnership (TPP) agreement too with the United States making sign-on by China close to impossible.

What then, of progress with trade reform?

Making progress on trade reform (and economic reform more generally), will not be delivered in trade negotiating forums. As Krugman says, the case for free trade is primarily unilateral. And political will must be urgently mobilised at home.

What’s needed now (from both optimists and pessimists on the Round) is to keep ripping the fig leaf off current efforts at economic diplomacy. Doha is becoming a joke because, as Sourabh Gupta explains, the US keeps shifting the goal posts, with its take-it-or-leave-it diplomacy designed to ensure ‘anyone but China’ outcomes. FTAs are a joke because they are with nations that don’t matter in the total scheme of global trade and are designed by the powerful to exclude anything that matters or brings real gains. It’s hard to see how such FTAs could create a serious domino effect that is likely to bring in the other big players, as some still argue. If FTAs were about trade and economics, the United States would be negotiating with China and a Japan-China FTA would be on the table as well. So current economic diplomacy has become empty of content.

The world does not yet have a plan B. And losing all that has been gained in the 10 years of negotiating Doha is a monumental waste. What gains have been achieved should be locked in with a take-what-there-is deal because there is enough there and it is critical not to weaken the whole system at this juncture.

Leaders ‘should argue that Doha needs to be done to preserve one of the world’s most precious public good – the rules-based, WTO-centric trade system’. ‘It is a system’, as Baldwin and Evenett remind us, ‘that has created so much prosperity in America and lifted so many people out of poverty in China, India and Brazil’ that’s worth saving.

And while further actual trade and behind-the-border reform will now require mostly unilateral effort, a Plan B on economic diplomacy is vital because of the implications for security.

Philippa Dee is Adjunct Associate Professor at the Crawford School of Economics and Government at the ANU and Shiro Armstrong is currently a Visiting Fellow at Columbia University and Editor of the EAF.

1. Implementing the G20 commitment to World Trade Reform
2. Trade policy needs to go global
3. The end of Doha as we have known it: what next for Australian trade policy?

Everyone is calling for a Doha conclusion by 2010. The G5 and the G8 are doing it. The APEC Member countries are doing it.

But Jagdish Bhagwati warns ‘Everybody’s talking a good game, but the question is whether they can play a good game … You have to distinguish between containing protectionism and actually liberalising further. I can’t think of any example of liberalisation when the macroeconomic stress is this enormous.’

‘This is just a ritual assertion,’ Bhagwati adds, referring to the G8+G5 statement. ‘When it comes to actually liberalising trade, they have to face their parliaments and their publics.’

But let’s think about this.

Firstly, when it comes to facing parliaments and publics, it’s never a good time to liberalise. That is why the trade negotiators spend so much time talking about phasing and adjustment.

Secondly, the global financial crisis (GFC) has itself exposed the absurdity of many of the protectionist arguments.

The reason many countries are now in strife is precisely because trade has collapsed. Financial jiggery-pokery allowed absurdly bad US risks to be ‘laundered’ to the rest of the world. In a situation where no-one then knew where the skeletons were buried, finance dried up. And because finance greases the wheels of trade, trade dried up.

Never has the dependence of prosperity on trade been more graphically demonstrated. Of course, never has the dependence of prosperity on finance also been more graphically demonstrated. But then far more people work in trade-related fields than in finance. It has been the trade link that has really spread the bad news.

So never have claims to restrict trade further seemed more absurd. Here in Australia, the economy is defying expectations because China is doing so well, and we sell a lot of coal and iron ore to China. In this context, calls by unions to boycott cheap Chinese steel on local construction sites is breathtaking in its stupidity, and can be seen to be so.

So the point is, in the face of the GFC, governments have the best opportunity they have ever had to expose this stupidity.

Some of us have thought for quite some time that one of the big problems with the Doha Round is that governments have not done enough selling of the benefits domestically. The GFC has reminded everyone of what is at stake. There is some evidence of success in containing protectionism. The latest WTO assessment is that there has been ‘further slippage’ toward protectionism, but that the use of ‘high intensity’ trade-restricting measures remains ‘contained overall, albeit with difficulties‘.

Governments have a golden opportunity to use the real lessons from the GFC not just to contain protectionism, but to finally deliver a Doha Round. And the key is not what they do in Geneva, but what they say at home.

1. The crisis and reinventing WTO negotiations
2. China’s response to the global financial crisis
3. The global financial crisis and short-run prospects for India

The largely self-serving statements from the universities in the lead-up to the Bradley review would have one believe that this is all about how much government money will be spent on higher education, and how it will be divvied up among institutions. Principles of good regulatory design are easily lost in the process. In order to evaluate what comes out of the review, let’s think about what we are trying to achieve.

Even the staunchest small-l liberal would not want to leave the Australian tertiary sector entirely to market forces. At minimum, there needs to be some accountability for the large amounts of taxpayers’ money involved. But to think about how those accountability mechanisms should be designed, it is useful to think about how our tertiary institutions, as (mostly) non-profit organizations, behave.

By definition, non-profit organizations are not primarily about making profits. Their goal is to achieve some non-profit objective – let’s call it a ‘charter’. This is not to say that they don’t care about the bottom line. On the contrary, they will have every incentive to seek out activities that might contribute greatly to revenue, even if they do not contribute greatly to the ‘charter’ objective(s), and use those activities to cross-subsidize activities that contribute greatly to the ‘charter’, but not greatly to revenue. Think about universities that use the revenue from full-fee paying foreign students to cross-subsidize research or new course development. Theory suggests that in the limit, if external government funding shrinks sufficiently, the charter-intensive activities will be squeezed out altogether, and the organizations will behave exactly like profit-maximizing firms.

These organizations do not have an in-built incentive to ‘waste’ resources. They have the same incentive to be technically efficient as profit-maximizing firms. But they do have an incentive to define their charter in self-serving ways (eg to maximize the numbers of tenured professors employed).

So here is the case for government involvement

-to provide the government funds to allow universities to pursue low-revenue charter activities that are valued by society

-to monitor the charters of those organizations on an ongoing basis to ensure that they do not stray from those activities that are valued by society.

According to this view, governments do not have to micro-manage universities. But they do have to manage their charters. Within those constraints, governments can rely on market principles of competition and consumer choice to spur better performance in teaching (so as to attract undergraduate students) and research (so as to attract graduate students). And if need be, they can impose a quality assurance framework to ensure that all institutions meet some minimum acceptable standards.

Government involvement in higher education in Australia has been characterized by extreme micro-management, combined with an approach to the allocation of funding that has imposed the same charter on all institutions, in order to simplify the allocation process. The allocation has driven the charter, rather than vice versa.

The Bradley review has recommended a national voucher system, which will put government funding in the hands of students rather than institutions. Incentives will also be provided to enroll students from low socio-economic backgrounds, indicating that ‘access’ is now a desired charter activity. And the review has recommended a new national accreditation agency, to better ensure that minimum standards are met.

The Bradley review has *not* recommended that institutions should be able to negotiate their own tailor-made charters with government. But student choice will remain a Clayton’s choice unless institutions have this freedom. For example, the University of Melbourne should be able to offer US-style undergraduate courses, subject to meeting quality assurance requirements, but there should be no requirement for this to be imposed cookie-cutter style on the rest of the country.

If vouchers were to be the *sole* funding allocation mechanism, then the negotiation of charters could be divorced completely from the allocation of funding, substantially lessening the tendency for bureaucrats to manipulate charters to make funding allocation easier. So Gavin Moodie is wrong to say that ‘the negotiated institutional planning implied by compacts would be starkly inconsistent with the operation of a student entitlement scheme’  - the two instruments would be doing different jobs.

Instead, according to the Bradley review, a uniform charter will be imposed and enforced by the new national accreditation agency: a university would have to deliver research higher degrees in three broad fields ‘over time’ and do ‘sufficient research’ in all broad fields in which they offer coursework degrees. Even Ian Chubb argues that Australia does not need 43 different Harvard clones.

Let’s see if we can manage to increase the university enrolment rate of Gen Ys from 29 to 40 per cent under this approach!

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See also:
The US college loan system looks odd from down under
Financing the expansion of higher education in East Asia

1. Private higher education in China and India
2. Larry Summers on higher education and development
3. China’s higher education revolution

The United States has agreed to join Singapore, New Zealand, Chile and Brunei in a free trade agreement which could set the pace for a broader Asia-Pacific free trade area, officials have said (The Straits Times, 22/09/2008). This is consistent with the US idea of ‘competitive liberalisation’ – the idea that if it signs up preferential trade agreements with some trading partners, others will want to join.

The trouble is, the partners that the US has snared have by and large been tiddlers – small countries with an inferiority complex who, in their perceived position of vulnerablility, are susceptible to this trade policy equivalent of emotional blackmail. And I am allowed to say this because I was born in New Zealand.

It is true that the existing P4 agreement between Singapore, New Zealand, Chile and Brunei is path-breaking in many respects. For example, it is the only agreement in the region to include a necessity test to discipline domestic regulation in each country (it must not be more burdensome etc etc).

But to suggest that this move is a precursor to a Free Trade Agreement of the Asia Pacific (FTAAP) is preposterous. If the US and other major trading partners cannot persuade each other to come to the party in Geneva, what hope do they have in a FTAAP?

Nor does this move do anything to address the ‘noodle bowl’ problem of overlapping, inconsistent rules of origin, reservations and exceptions in preferential agreements. Instead to trying to stitch together its existing agreements (including existing bilaterals with Chile and Singapore), the US is adding to the fragmentation.

US Trade Representative Susan Schwab should take a long hard look at the list of scalps on her belt (such as Oman, Jordan and Morocco) and declare competitive liberalisation to be intellectually bankrupt. Then, she should be trying seriously to stitch together the existing deals she has. We already have at least one nice triangle of bilaterals, namely, US-Singapore, US-Australia and Australia-Singapore. Why not start with that.

1. The Trans-Pacific Partnership
2. Can the TPP Resolve the ‘Noodle Bowl’ Problem?
3. To talk or not to talk with North Korea

The good news is that the APEC ship is slowly turning around. Rather than keeping its prime focus on trade and investment liberalisation, with the fixation on foreign discrimination that this brings, APEC Ministers are embracing the importance of behind-the-border reforms. The change in focus is vital because the barriers that are doing the biggest damage are the ones that are holding back domestic players. The gains from reforming the non-discriminatory barriers — those that affect domestic and foreign players equally — are an order of magnitude greater than those typically delivered by trade agreements.

In Melbourne yesterday, APEC Ministers announced a joint commitment to structural economic reform, and agreed to voluntary reviews of national regulatory frameworks.

APEC nay-sayers may scoff at the voluntary nature of the commitment, but in the area of behind-the-border reforms, nothing else will work. The political economy of structural reform is primarily domestic — typically an incumbent versus a group comprising new entrants, upstream and downstream using industries and consumers. The political battle needs to be fought domestically, and regional input cannot afford to be intrusive. Policy reviews can help to highlight who the players are, what their interests are, and by how much they would gain or lose from reform. It can make the pro-reform coalition members aware of each other, and help to push the cause domestically. Arguably, it is this lack of a domestic sales job that has led the Doha Round to falter. But the sales job needs domestic political backing. This can’t be forced from outside. It has to be voluntary.

Turning the APEC ship around is taking time, and progress is slow. Similarly, as Australians well know, the domestic reform agenda is a difficult one, the sales job takes time, and progress in member countries must be expected to be slow. What APEC can do is help with the process. It cannot be held directly accountable for outcomes, because these will need to be delivered by the domestic political processes in Member countries. So if yesterday’s announcement looks like progress at a glacial pace, so it should be.

The bad news is not the ‘weak’ or ‘slow’ nature of yesterday’s outcome.

One part of the bad news is that the wrong people came to the party. A few countries sent Ministers from central domestic economic policy making agencies, but many sent their trade ministers — often (but not always) the same people with the hang-up about discrimination against foreigners. No wonder the journalists stayed away in droves.

Another bit of bad news was the failure to set a date for another Ministerial. There was no effective Ministerial follow-through. But I guess that if you have had gate-crashers, you probably don’t want to repeat the party.

Australia will need to work harder to ensure that the right people are there next time and demonstrate a commitment to follow-through that seems to have been totally absent.

For further reading see my article East Asian Economic Integration and its Impact on Future Growth, The World Economy, 30(3), 2007, pp. 405-23.

1. APEC to tackle the Doha round?
2. APEC meeting: New policies for Indonesia?
3. APEC and structural reform