The brake on Russian economic development

Aleh Tsyvinski and Sergei Guriev:

Medvedev [Dmitry Medvedev’s election as Russia’s new president] seems to understand that sustaining growth will not be easy: oil prices cannot rise forever, and the “low hanging fruit” of basic economic reform and prudent macroeconomic policies have already been picked. According to Medvedev, the only solution is to empower private initiative and innovation.

Inequality and corruption are the main obstacles. Despite Russia’s recent economic achievements, both remain at alarmingly high levels. According to Forbes magazine, there were 87 Russian billionaires, with combined wealth of $471 billion, a figure second only to the United States. Yet their net worth accounts for roughly 30% of Russia’s GDP, whereas America’s 469 billionaires are worth only about 10% of US GDP.

More importantly, inequality of opportunity is very high as well. According to a recent survey, a majority of Russians believes that acquiring wealth requires criminal activity and political connections. Only 20% believe that talent matters. These beliefs are self-fulfilling prophecies.

Aside from the relatively small middle class and the even smaller business and intellectual elite, most Russians neither take risks to become entrepreneurs nor favor economic and political liberalization. According to a recent large survey by the European Bank of Reconstruction and Development, only 36% of Russians support democracy and a mere 28% support market reform, by far the lowest among all transition countries on both counts.

The other major barrier to growth is corruption. In another World Bank-EBRD survey, 40% of firms in Russia reported making frequent unofficial payments, and roughly the same percentage indicated that corruption is a serious problem in doing business. Unlike in other emerging markets, corruption has not declined with economic growth; it remains as high as in countries with one-quarter the per capita income of Russia.

My emphasis. Thanks to Greg Mankiw for the pointer.

Crust of bread and such

There's corruption up the wahzoo in the Egyptian bread market. AP reports:

It's a sore point for a country struggling to contain bread riots: Bakeries that get government-subsidized flour often sell it on the black market at a huge profit, taking food from poor people's mouths.

But in Egypt — notorious for low wages and corruption — bakery workers say they have little choice but to steal the flour and sell it, both to feed their families and to pay the crushing bribes demanded by government officials and police.
...
the crisis has also highlighted the widespread petty corruption pervading Egyptian life — from bakeries to hospitals to police stations — that many who earn meager paychecks maintain is the only way to make ends meet.

In one poor district of Cairo, a government official in charge of a public bakery shows his paycheck: After 20 years in his position, he earns about $55 a month, including supposed bonuses.

"I have to steal — how would I survive without stealing?" the official, a father of eight, told The Associated Press. He spoke on condition that he and the district where his bakery is located not be identified, fearing reprisals.

He admitted that he regularly sells a portion of his bakery's subsidized wheat on the black market. The government provides a ration of wheat to state-run bakeries at a subsidized price of about $1.50 for each 110-pound sack. The wheat is supposed to produce bread that sells for less than one cent per loaf. But many bakeries sell some of it to private bakeries at up to $37 a sack.

Part of the difference, the bakery employees pocket. But part is needed to pay off the host of government inspectors — from the police, the Supply Ministry, the city government and local councils — each of whom demands his own fat bribe.

"I just have to give bribes to most of them or they would file fines or close the bakery," said the official, whose bakery receives 68 sacks of subsidized flour every day.

A senior security official involved in government crackdowns on the black market wheat said public bakeries often sell off up to half the subsidized wheat they receive. He also acknowledged that many inspectors pockets bribes from bakers.

"Now if I'm an inspector and you, the baker, give me 1,000 pounds ($180) a month while my salary is 200 pounds ($37) a month, wouldn't I sell my conscience?" he said.

Unless the government "feeds the people, they will keep on stealing and receiving bribes," said the security official, who spoke on condition of anonymity in exchange for discussing the situation honestly.

One baker, Mohammed Abdel-Salam, said he used to work for a private firm that bought subsidized flour from public sector bakeries. "Very late at night or in the early hours of the morning, I used to go to the big public bakery and pick up three or four sacks of flour" for $37 each, he said. Private bakeries sell bread at market rates, up to 25 times the subsidized price.
...
Unless ambulance workers get their obligatory "tips," patients might not reach the emergency rooms in public hospitals on time — and once there, patients must be sure to gave nurses a gratuity — called "baksheesh" in Arabic — just to get basic care. In schools, nearly all Egyptian students face pressure from their teachers to pay for "private lessons" after school hours.

Galal Amin, an economist at the American University in Cairo, said corruption in Egypt is a "law that cannot be violated."

"The bribe, big and small, for public employees is not only expected but obligatory," Amin wrote in the independent daily Al-Masry Al-Youm. "Bribes are given and received openly, without embarrassment. An employee considers it part of his monthly salary."

Cement in Oman

Arabian Business:

Oman said on Saturday [March 15] it was considering reducing import duty on building materials in an effort to put a cap on rising inflation in the construction sector.

"We are revising the import duty on building materials to help reduce the cost of cement, steel and wood," Chamber of Commerce and Industry Chairman Khalil Al-Khonji told reporters.
...
Oman had restricted the import of cement two years ago to support the sale of local firms Oman Cement Company and Raysut Cement Company, but the move caused shortage in the market.

Said Al-Barwany, chairman of Al-Barwany Construction, told newswire Reuters Oman needed an extra 20,000 tonnes per day of cement to help reduce the shortage.
The price of cement has doubled in the past year, according to Baljit Singh, a building materials trader.

"A 50-kilogram bag of cement rose from 2.4 rials ($6.24) last Sunday to 3.6 rials today; it is too much. This time last year, it was only 1.3 rials per bag," Singh said.

Meanwhile, Oman Cement is in discussions with the government on plans to raise the price of cement to offset the soaring price of imported clinker, which is used to make cement, Chief Executive Jamal Al-Hooti told Reuters last week.

Muscaticonfidential points to evidence that this is a black market in cement. According to the Oman Tribune,

Two Asians were caught red-handed while selling cement at exorbitant price in the Wilayat of Ibri on Tuesday [March 24].

The two expatriates were selling cement at the rate of RO2.900 per bag.

The arrest was made as part of a campaign run by the Ministry of Commerce and Industry against people manipulating prices.
...
In spite of the Ministry of Commerce and Industry’s continued inspections to check illegal trade practices and the arrests being made by the police, in addition to the authorities’ warning of stringent action against the violators, some traders and their aides have been ignoring the warnings and were selling cement at high prices.

Trade Arabia adds,

Oman Cement Company, the country's largest cement firm by market value, said it is in talks with its government owner about raising prices or possibly face a fall in profit this year.

'If we don't increase cement prices by 1 to 2 rials per tonne, profit might come down in 2008,' Oman Cement chief executive officer Jamal Al Hooti said in an interview in Muscat on Wednesday [March 12].

Black market opportunities for profit exist when buyers cannot fulfill their planned purchases at the official price. In other words, there is a shortage, a gap between the quantity buyers would like to purchase at the official price and the quantity sellers are willing to produce. Frustrated buyers are willing to buy (a smaller amount) at a price above the official price, sometimes much more. The "Asians" had a profit opportunity if they could acquire cement at the official price and resell it at a higher price.

A natural question is how the black marketers came into possession of the cement in the first place. The most innocent possibility is that they were able to purchase it without any favoritism from the original seller be it from a producer or an importer. Otherwise, there is some corruption involved beyond the violation of selling above the official price.

Import duties do not create shortages. They reduce imports, and drive up the domestic price. Shortages are created by price ceilings -- the official price above which it is illegal to sell. These prevent price from rising to bring the quantity demanded into balance with the quantity supplied.

The additional complication in the Omani cement market is that the major domestic producers are government owned. Yet the government-owned cement producers have to obtain permission from the government to raise the price. What they can do, as is evident from the fact of a shortage, is restrict quantity; they are not obligated to satisfy demand for cement at the official price. If their objective is to maximize profit, or to meet a target level of profit, then an increase in the price of an input (in this case clinker) will decrease the amount they are willing to produce at a given cement price.

Reducing the import duty would reduce the shortage. So would raising the official price for cement.

Speaking of cement, is this the headline you'd give this story?:

Growth in cement imports plummets

Growth in cement imports into Dubai slumped 60% last year, state-owned conglomerate Dubai World said on Sunday, without giving a reason for the drop.

Dubai World said cement imports shot up 73.6% to 2.960 million tonnes in 2007, but the growth fell well short of the 184% increase in imports seen in 2006.

My point is, 73.6% growth is enormous growth by any measure.

And finally, on the cement front, the UAE has eliminated the duty on cement and rebar to ease inflation.

The price of subsidies

Voice of America

In Egypt, a shortage of subsidized bread has resulted in long lines and occasional clashes in which several people have been killed. The president has ordered the army to use its bakeries to try to end the bread crisis, but the roots of the problem are more than just simple supply and demand. Rising food prices and poverty have combined with corruption to create a bread problem that will not be easily solved. VOA Correspondent Challiss McDonough has more from Cairo.

About 30 people are crowding around two small windows at a Cairo bakery, shouting at each other and jostling for the best place in line. The heat is blistering already, and women in the crowd shade themselves from the sun with plastic bags.

A woman named Fatma says she waits here for two to three hours every day to buy bread for her family of five.

Gesturing toward the chaos at the bakery window, she says, "What can I say? You can see this bread problem for yourself. The prices of everything have gotten so high."

This bakery is selling round loaves of government-subsidized bread, known locally as "balady" or country bread. The price is fixed at five Egyptian piasters, or less than one U.S. cent a loaf.
...
Economist Hanaa Kheir el-Din is executive director of the Egyptian Center for Economic Studies.

"All other food prices have risen. There are a lot of food prices which rose sizably - look at the oil price for instance, rice, sugar, everything is rising - but balady bread has been kept at five piasters a loaf, and the flour which goes into it is delivered at a much lower price while the baker can sell it on the black market at several times the price," said Kheir el-Din.

The corruption is not limited to selling subsidized wheat flour on the black market.

At the bakery, a heavy metal door swings open and then clangs shut quickly, and a man scurries away holding five round pieces of freshly baked bread.

Another man who gives his name only as Samir waves his hand angrily toward the door.

He says the bakery employees let some people inside to get bread quickly while he and the rest are waiting in line outside in the sun for hours.

This is an emotional issue. Bread is such a vital staple food here that Egyptians use a different word for it than other Arabic-speakers do - they call it "aish," which literally means "life."
...
There is no shortage of bread for those willing and able to pay higher prices for it. Some people who buy the subsidized product resell it just down the street for twice the price. And unsubsidized bread is in plentiful supply at local markets, but that costs five times as much.
...
The last time the Egyptian government tried to remove subsidies on bread, in 1977, riots broke out and more than 70 people were killed.

But food subsidies now take up a huge portion of Egypt's annual budget, one that is growing as global food prices rise.
...
Back at the bakery, Fatma sighs as she stares at the raucous crowd pushing and shoving to get closer to the front. She shakes her head and moves into line, saying under her breath, "May God have mercy on the poor."

At the very least, Fatma surely values those two or three hours spent daily in line.

In the classic textbook analysis of subsidies there is no shortage. In this real life example there must be more going on. Either the government has limited the quantity it will subsidize, or it has it is not only subsidizing, but it is also controlling the price the bakers can charge. Otherwise, there would be no shortage, no favoratism, no reselling, no black market.

The same sort of policy mix is applied in Iraq in the petrol and diesel markets to sometimes deadly effect.

In Eypgt and in Iraq the governments needs to figure out how to remove these inefficient, distortionary and corrupting policies in a manner that is politically acceptable.

World Bank and the poorer Arab economies

The Wall Street Journal ($)

[World Bank President] Mr. Zoellick says he plans to focus more on the Arab world and encourage the kinds of reformers he met [as US trade representative] when negotiating free-trade pacts with Oman, Bahrain and Morocco and pushing for stronger trade ties among Egypt, Israel and Jordan. Boosting employment is a huge challenge in the Middle East, where the birth rate is high and economic growth isn't. Mr. Zoellick believes that focusing on labor-intensive export industries, like textiles, could help. His theory: The bank can help "create societal cohesion by giving people the chance to have opportunity and development."

To come up with specifics, Mr. Zoellick has consulted his onetime economics professor at Swarthmore, Howard Pack, now at the University of Pennsylvania's Wharton School. Mr. Pack says trade liberalization won't work unless other changes are made too, including building better ports and roads and making customs systems less corrupt. Education and social mores are critical, too. When Asian nations in the 1970s and 1980s jumped into textiles and manufacturing, they began with workers trained in manufacturing and women willing to work outside the home. That is often not the case in Arab nations.

There's also this from a WSJ interview with Zoellick ($):

If you look at Egypt, one of the challenges will be, can people create jobs and opportunity and have a sense that the government is meeting social needs? [If not], others will try to meet those needs, as you have seen elsewhere in the Arab world.
...
The U.S. Congress had created something called QIZs, qualified industrial zones, which Jordan used to great effect. What they permitted was duty-free access to the United States for goods produced in these zones. But the country had to work out with Israel a certain percentage of Israeli investment, and that was to be negotiated by the countries.

Egypt had held off, and so one of the last things I did [as U.S. trade representative] in 2004 was to participate in an event in Cairo with [Israel's Ehud] Olmert, who was then the trade minister, and [Rashid Mohamed] Rashid, who was commerce minister, to create a number of these QIZs.

What stuck in my mind is that as I was leaving for the airport, there were reports of two demonstrations. One was of about 300 intellectuals that were protesting Egypt's doing an agreement with Israel. The other was thousands of workers who were protesting that there weren't more QIZs, because they wanted the jobs.

Op-ed: real challenge for Muslim nations is economic

The author is the prime minister of Malaysia. He writes in the Financial Times:

There is a danger that today’s overwhelming focus on the Muslim world’s political relationship with the west is diverting attention from even more fundamental social and economic problems. The Muslim landscape that stretches from Morocco to Mindanao is more diverse than western commentators often suppose. There are peaceful countries where the people are wealthy, healthy and educated. However, these are sadly outnumbered by countries and regions that are under­developed, poor and in turmoil.
...
Development must, therefore, be at the top of the agenda of all Muslim countries and communities. This is not simply an issue of income levels, good housing and adequate health facilities. It must also mean a literate and informed society, a representative political system that gives effective voice to the people, the absence of severe inequalities, efficient and honest administration and a commitment to the rule of law. A country cannot be considered developed until rights are respected, women are empowered, minorities protected and corruption eradicated...

Here's the $ version at the Financial Times. More quotation from the essay is available here.

Iran: Crude reality :: WSJ

Some extracts:

Iran sits on one-tenth of the world's known oil supplies but is using so much energy these days it may start rationing gasoline as soon as next month.
...
As the country has grown wealthier selling oil and gas, Iranians have themselves become large consumers of energy. Government subsidies, which make energy nearly free to consumers and businesses, stoke the demand further. At the same time, a combination of Western sanctions and Iranian policies has discouraged foreign investment in oil fields, causing production to stagnate. The result: Iran's oil exports could dry up in as little as a decade, according to some who have studied the situation. That's a looming disaster for Iran, which derives about 85% of its export income from the sale of oil.
...
Once seen as little more than a giant petrol station to the world, Middle Eastern oil suppliers are now becoming some of the largest consumers of energy anywhere. They are attempting to diversify their economies, often by encouraging energy-thirsty industries such as refineries and processing of metals like aluminum. Meanwhile, record numbers of young people are growing up and establishing households. Already, the Middle East and North Africa's population of some 300 million consumes almost as much oil as 1.2 billion Chinese.

Iran, where a huge population bulge is reaching adulthood, is confronting the export crunch earlier and more acutely than others. Iran already consumes more oil than all but 15 other countries on earth, according to the International Energy Agency, which monitors the world energy market. In 1995, Iranians used the equivalent of 34% of the oil they pumped from the ground, exporting the rest. Last year they used 40%.
...
Iran will also have to keep ahead of Iranians' own thirst for gas and oil, which is growing at a double-digit pace. So far, it is losing the race.

Much of the problem is waste. A recent study by a parliamentary committee said that 18.5% of the country's electricity is lost before it even reaches consumers, due to rickety infrastructure, corruption and mismanagement.

... subsidies make energy practically free in Iran, discouraging any serious energy conservation. Gasoline, for example, costs about 40 cents a gallon at the pump. That's encouraged an explosion of use, as Iranians add new cars while continuing to use fuel-guzzling old models. It has also encouraged a brisk smuggling trade as Iranians buy millions of gallons of fuel at the subsidized price and truck them into neighboring Pakistan, Turkey, Afghanistan and Iraq for sale at market rates.

Treating students as customers: corrupt and corrupting

CoreEcon draws attention to this essay by the dean of Chicago Graduate School of Business, Ed Snyder. Quoting Snyder:

Redefining the relationships between business schools and their students as customers has become the norm over the last two decades. We probably got to this point because―somewhere during the last 28 years of above-inflation tuition increases―our predecessors felt better telling those to whom we charged increasingly large amounts that they were not mere graduate students, but customers.
. . .
One problem. The model is corrupt and corrupting.
. . .
If we get the right balance of stretch and support, then we move to a more productive equilibrium, in which students put more in (because they feel both challenged and supported) and they get more out of their experience.

No one should think that I advocate a return to Stalinism. Abandoning the customer model doesn’t reduce the pressure to innovate. It doesn’t prevent us from investing in global career support. However, getting rid of the customer model does mean that every time our students refer to themselves as customers, you can avoid the trap and instead move to surer, higher ground. It causes our jobs to shift toward setting expectations and asking more of your students.

I have expressed similar thoughts here and here. See, also, the additional insights provided by SCSUScholars, The EclectEcon, and The Economist En Su Laberinto.

Instapundit :: Oil trust idea lives (?)

Not so fast, Instapundit. The NYT article you cite says:

Iraqi officials are near agreement on a national oil law that would give the central government the power to distribute current and future oil revenues to the provinces or regions, based on their population.

It says nothing I can see about what you and Hillary and Barone have been advocating -- distributing, in Barone's words, "part of the state's oil profits in payments to every individual." (Emphasis added.) To. Every. Individual.

As I have been said economist Vernon Smith has an even better idea, an Iraqi People's Fund, and he's been saying it since the capture of Saddam:

For long-term success, the enormous task of nation rebuilding in Iraq requires attention to more than the creation of a political democracy. No matter how well-intentioned and democratic it might be, the next government will be tempted to corruption, violation of rights and expanded political power if it owns and controls the great economic wealth potential of Iraq. This is the time, and Iraq is the place, to create an economic system embracing the revolutionary principle that public assets belong directly to the public -- and can be managed to further individual benefit and free choice, without intermediate government ownership in the public name.

In Iraq, the rights in question are to the former government's producing properties, transportation, terminal facilities, waterways, land and subsurface rights. These assets should first be declared transferred to the account of the citizens, recognizing the birthright of each citizen to a personal, empowering property right in the land and assets of the country of their birth. All citizens should have an equal share in this fund and be issued the same number of share claims to the fund.

Again, I've added the emphasis.

Corruption Perceptions Index 2006 :: Transparency International

The UAE is 31st best worldwide. USA is 20th. Iraq is one from the bottom. Haiti is last.

Iraq and the Corruption Trap :: Arnold Kling

Quote:

The World Bank's Philip Keefer says that young democracies are fragile because governments are weak. Weak governments, unable to sustain broad-based power, turn to corruption in order to retain narrow-based power. However, corruption discredits the government, making broad-based power even less available. This makes the government even more dependent on corruption for survival. I call this the Corruption Trap.

The corruption trap helps explain why bad government tends to stay bad. Russia and other former Soviet republics appear to be caught in the corruption trap. The corruption trap may explain the perennial disappointment in many African and Latin American countries. Conversely, economic growth in Asia may reflect an escape from the corruption trap.

On the other hand, good government tends to stay good -- not perfect, but good. Once the public comes to expect honesty, this expectation becomes self-reinforcing. Corrupt officials are exposed and denounced. Periodic reforms and house-cleanings address the worst offenses.

If young democracies are most at risk, how do some manage to be drawn into the virtuous equilibrium rather than being sucked into corruption trap? Kling suggests that in the case of the U.S. it was inheritance (rather than mere application) of British culture. I suggest, instead, that the U.S. we were quite fortunate to have a virtuous and widely-respected leader, George Washington, who garnered widespread electoral support and power. Of course, the hypotheses are not mutually exclusive, and together they are reinforcing of the result.

Gaza's collective self destruction :: BBC NEWS

Quote: there is now a growing appreciation of the depth of the malaise in Palestinian society. Hafiz Barghouti, the editor of the newspaper Al-Hayat Al-Jadeed, has written: "It appears we are neither prepared to change, nor admit that we have failed in running our own affairs. Everyone is busy calculating how to make the biggest possible gains at the homeland's expense. "While most Palestinians find it easy to blame the occupation for all our ills, it is a fact that the occupation was not as bad as the lawlessness and corruption that we are now facing."

Via The EclectEcon.

Others will still want to blame the morbidly obese man, and not look to themselves. The past is a given, but the future is in your hands.

Corruption Perceptions Index 2005 :: Transparency International

Best: Iceland (score of 9.7)

Tied at #158 for last place: Bangladesh and Chad (score of 1.7)

Best Arab country: Oman tied with Israel at #28 (score of 6.3)

UAE: #30 (score of 6.2)

USA: #17 (score of 7.6)

Iran: #88 (score of 2.9)

Economic Corruption? :: Iran Daily

Iran defines capital flight as "economic corruption."

Perhaps Iran would be in a stronger geo-political position if it figured out that it was shooting itself in the foot with misguided economic policies and government corruption and mismanagement that cause capital flight.

Second Syria :: IRIN

Quote:

Compulsory military service, low wages, corruption, a poor investment climate and hassles at the airport from Syrian security officials, are just a few of the reasons given by members of Syria’s 15 million strong expatriate community for staying abroad.

One year ago exactly, a conference in Damascus promised to find ways to lure back this “second Syria”, a nation of doctors, scientists and teachers, numbering only a few million less than their countrymen at home.

Syria’s educated elite has been leaving the country in large numbers since the 1970s to escape poverty and the constraints of living under an authoritarian government.

The 2005 National Human Development report, published jointly by the United Nations Development Programme (UNDP) and the State Planning Commission, said only 20 percent of Syrians who gained a Phd at a foreign university returned home afterwards.
. . .
According to information published at last year’s conference, Brazil hosts about five million people of Syrian descent, while Argentina has a further 1.5 million.

There are also thought to be about 750,000 Syrian expatriates in the United States.

However, it is abundantly clear that the expatriate community has valuable skills to offer.

Of the 59,000 Syrians living in Germany, around 18,000 are doctors, according to the delegation of Syrians from Germany which attended the Damascus conference.

In the Middle East, it is estimated that as many as two thirds of the teachers in Gulf States such as the United Arab Emirates, Kuwait and Dubai are of Syrian origin.

Corruption 'slowing down development drive' :: GN

Abu Dhabi: Administrative corruption is hampering development plans and undermining confidence between the state and its citizens, according to a police study. "Administrative corruption is one of the most devastating behaviours as its runs counter to the development drive," said a study conducted by Abu Dhabi Police's Centre for Security Research and Studies. The study, called Security in the Face of Administrative Corruption, cited psychological, environmental and administrative factors as well as poor control, lenient judicial deterrence and weak security organs as the main reasons behind administrative corruption.

This editorial is exactly on target. It is a sign of maturity to point out your organization's own faults and to go after them.

Economists add up the oil-for-food payoffs :: NYT

A new study (pdf) by Chang-Tai Hsieh and Enrico Moretti, two economists at the University of California, Berkeley, sheds light on just how much corruption could have taken place in exchange for oil sales in the oil-for-food program. Although their estimate greatly exceeds the Central Intelligence Agency's figure, the amount of kickbacks and political favors given for lucrative oil deals was still fairly limited, probably no more than 3 percent of the total oil revenue collected, they concluded.

The methods used by Professors Hsieh and Moretti clearly show how economics can be used to gauge the extent of corruption.
. . .
Oil is a commodity, so a given grade of crude oil should trade for the same price.

Here is why the price matters. Suppose that Iraq's leaders sought bribes or political favors, and that the market price of crude oil was $50 a barrel. If Iraq offered to sell its oil for $50, then buyers would have no incentive to provide kickbacks for the privilege of buying Iraqi oil; they could have bought the same grade of oil for the same price from another supplier without having to pay kickbacks. To give buyers an incentive to pay kickbacks, Iraq would have to underprice its oil.

The Berkeley professors have amassed compelling evidence that Iraq underpriced its oil, in all likelihood for the purpose of obtaining bribes and political favors.
. . .
In the 15 years before the oil-for-food program began, there was no difference in price between either type of Iraqi oil and that of its closest competitor, on average. When the program was in effect, however, the price of Basra light fell more than $2 a barrel below the price of Arabian light, and the price per barrel of Kirkuk oil was 70 cents below Urals oil.
. . .
In response to rumors that bribes were being paid for Iraqi oil, the United Nations switched in September 2001 to a retroactive pricing system, in which buyers learned the price of oil only after it was loaded onto their tankers and the world price was known. This made it much harder for Iraq to charge less than the market price - and, in fact, there is little sign of underpricing after 2001.

Although not all 1,300 oil transactions during the program could be examined in detail, the pattern of traders selected to buy oil by the Iraqi regime hints of corruption. In periods when Iraqi oil was underpriced the most, small traders were much more likely to be selected than major oil companies, which are probably less likely to pay kickbacks.

Over the entire life of the oil-for-food program, Professors Hsieh and Moretti estimate, oil was underpriced by $6 billion, with this extra profit divided almost equally between small and large companies.

Thanks to Lawrence of Salt Springs for the pointer.

Arab Human Development Report politicized - Gulf News
---QUOTE---
By As'ad Abdul Rahman, Special to Gulf News
...
In Washington, Richard Boucher, the State Department spokesman, said that "our overall appraisal of the report is it fits in the pattern of the previous two reports that focused on the need for reforms within the region. "It is not even so much that we disagree with the problems. We tend to disagree with these sorts of gratuitous statements about where they come from."
....
But in a departure from the two earlier reports on Arab society in which the group focused almost exclusively on problems within the Arab world, this study says the United States and Israel have also played an important part in suppressing Arab freedoms.

The Bush Administration had objected to language in early drafts that said Israeli occupation of the Palestinian territories and the American occupation of Iraq only served to impede Arab human development.
The report also said that one result of the American invasion of Iraq was that "the Iraqi people have emerged from the grip of a despotic regime that violated their basic rights and freedoms only to fall under a foreign occupation that increased human suffering".

The Bush Administration reportedly threatened to reduce financing for the development programme if such language was not removed from the text. To avoid such an outcome, the development agency released the report under its own name, but with a disclaimer in the preface.

"The Arab development crisis has widened, deepened and grown more complex to a degree that demands the full engagement of all Arab citizens in comprehensive reform. Partial reforms, no matter how varied, are no longer effective or even possible."

In part, the study blames the demise of democracy and freedom in the region on the structure of Arab states, which have become highly centralised, mostly offering their citizens only a small margin of freedom. Even in the region's limited democracies, the report says "societies and economies are organised in a way that prevents growth of an effective opposition".

The report argues that the global war on terror "has made the abuses worse and has given governments an excuse (which was, in any case, hardly lacking in the past) to arrest, torture and ignore rules on fair trials." The report further noted that "in few Arab countries are presidents elected with more than one candidate and with term limits".

The report dismisses the notion that "Arabs do not want democracy or are not properly suited for it". It bluntly blames their leaders for withholding it. "The leaders permit corruption and then use the threat of arrest, and intelligence services to ensure loyalty. Corruption spreads through all parts of political and economic life and chokes off the chance of growth. If the repressive situation in Arab countries today continues, intensified societal conflict is likely to follow. Nor would a transfer of power through violence guarantee that successor regimes would be any more desirable."
---UNQUOTE---

Read the whole article.

My take. It was a mistake for the Bush administration to block the report. The fact of the matter is that US policy past and present is part of the problem. It was a masterstroke for the Bush administration to draw so much attention to the report. Bush's attacks can only enhance the credibility of the report.

The report lays blame where it needs to be, and sets the groundwork for Arabs to take charge of the democracy project. You cannot take in the report and come away with the conclusion that the fate of the Arab world is not in its hands. The US simply is not that powerful even if you believe that it plays a large and damaging role.

AHDR 2004 can be downloaded here.

Syria's economic corruption of Lebanon - Lebanese Political Journal

Make the Lebanese Political Journal a must read for the coming months. From folks on the ground in Lebanon with some access.

The economic corruption referred to above has to do with the privately owned cell phone monopoly whose profits were pumped up by various nefarious means, actions and inactions. Read the whole thing, which is a quote from a larger report. Note that in the comment section LPJ (3rd comment) goes beyond quoting and moves into some interesting reporting.

LPJ will serve as a complement to Publius Pundit's Lebanon roundups of MSM and pundits.

UAE least corrupt Arab nation - Gulf News