By Petr Lang, PERG guest author and PSSI Program Coordinator
As the oil prices are skyrocketing and biofuels have recently lost much of their charm due to their partial impact on rising food prices, the majority of participants of the second European Nuclear Energy Forum, which took place on May 22-23 in Prague, might have been expected to wax lyrical about the bright future of their industry. However that was not the case. Not because they have lost their drive for increasing the proportion of the nuclear energy in the European energy mix, they are certain about that indeed.
As CEO of Areva Anne Lauvergeon put it, whatever you think, we are going to go nuclear. The reasons for such an assertive statement are well known: EU energy consumption is increasing and EU has obliged itself to a substantial reduction of carbon dioxide emissions in the coming years. Add the feeling of insecurity surrounding the imports of natural gas from Russia and the nuclear renaissance will seem inevitable. These arguments were continuously repeated during the forum. Czech Prime Minister Mirek Topolánek added the novel argument to the toolbox of nuclear aficionados, when he cited Andrei Sakharov, who once wrote that the nuclear energy is the only chance for the West to stay free and secure. Should we stick to this assumption, the future of European security and freedom will look uncertain, because as Czech Foreign Minister Karel Schwarzenberg soberly mentioned, we will have to wait for the nuclear renaissance for some time to come. There are several factors delaying the return of the nuclear age.
First, EU has only recently started to overcome the nuclear hangover caused by the Chernobyl disaster. The presence of the President of the European Commission José Manuel Barroso at the European Nuclear Energy Forum was maybe the most important point of the whole session, although rather symbolic. The European Commission is at pains to stress that it is up to every member state to choose the structure of its energy mix, including nuclear energy, deliberately refusing to either bless the nuclear option or doom it for good. Mr Barroso called for a greater cooperation among EU institutions and member states with nuclear facilities (15 EU countries operate commercial nuclear power plants) to establish common framework for nuclear waste management, security standards etc. Compared to the flood of initiatives and subsidies fueling the recent biofuels bonanza in the EU, the nuclear industry might feel like the Cinderella. Even if the Commission decided to pledge its support for the nuclear option, it would take some time to get the business back to pre-Chernobyl levels.
Furthermore, the nuclear industry is experiencing the same problems as the oil business. The majority of skilled professionals is nearing the retirement age, and the universities cannot fill this gap immediately, although the situation is getting better according to Jean-Pierre Le Roux, Vice Chairman of French Atomic Energy. The time factor plays also crucial role because the nuclear power plants cannot be built as quickly as their gas or coal fueled alternatives. Should the new nuclear power plants get operational by 2020 and thus help the EU to fulfill its environmental plans, the construction would need to start soon.
The last and maybe the most important factor inhibiting the nuclear boom is uncertainty. The construction of the power plant is very expensive and the operator needs some safeguards that it will not be forced to close the shop because of the sudden change in political or popular mood. This weakness was exploited by the representative of Friends of Earth Patricia Lorenz who said that when so rationally oriented entities as investment banks have their doubts about the nuclear energy, why should this industry get support from the governments whose primary responsibility is the well-being of its citizens?
Needless to say, there were not so many antinuclear participants at the forum, but the environmentalist rhetoric was omnipresent as the fight against the global warming may be the decisive element triggering the nuclear renaissance in EU. In the appeal to the European Commission the participants recommend the Commission “to declare nuclear energy as a low carbon and emission free energy generation technology, with positive impact on environment and sustainable development.” Furthermore, “as an expression of responsibility of the EU in fighting climate change [the EC is recommended] to declare unambiguous support to nuclear energy as a way to fulfill EU targets in lowering emissions gases by 20% by 2020.” This wording points to win-win situation. If the nuclear option gets such an acknowledgment, the investors will be more willing to open their wallets and the EU will be able to reduce the carbon dioxide emissions much more easily.
The second European Nuclear Energy Forum was not designed as a discussion of the pros and cons of nuclear energy (the opponents were clearly outnumbered by the supporters) but as a rapprochement towards the European Commission and EU institutions in general. Given the fact that over the next twelve months EU will be presided by France and the Czech Republic, who generally support the nuclear renaissance, there is a chance that the Atomium in Brussels will shine brighter than ever.
May 27, 2008
The Renaissance of A Nuclear Option?
May 22, 2008
European Nuclear Forum is like a “Legalize Marijuana” club
By Andrej Nosko
Czech economic daily E15, in May published an interview with my favorite Czech Ambassador-at-Large for Energy Security Václav Bartuška. In his as usually very sobering remarks, Bartuška talks about short-sightedness of management of Czech energy company subsidiaries, energy policies in Europe and need for an energy crisis in Europe as a 'wake-up' call.
Although, as usually, Ambassador Bartuska's comments would be worth translating in full. There are two comments that deserve translation for the non Czech reader above all other:
The first one is regarding the Nuclear Energy in Europe:
Original:
"[Jaderné] fórum připomíná takovou schůzku lidí, kteří chtějí prosadit legalizaci marihuany. Půlka z nich už tak potají pokuřuje na záchodě a bojí se to říct na veřejnosti."
My translation: "[Nuclear] forum reminds me of a gathering of people, that would like to legalize marijuana. Half of them smokes in private in the bathroom and is afraid to say that in public."
The second one concerns the problem of energy policy in Europe:
Original: “Evropa potřebuje týdenní blackout. Ne pětihodinový, týdenní. Aby to maso pochodovalo z mrazáku. Protože týdenní výpadek proudu vám maže civilizaci”
My translation:
“Europe needs a week-long blackout. Not five-hour, a week-long. So that the meat would walk out of the freezer. Because week-long blackout starts to erase civilization”
Further comments are not necessary.
If you'd like to read more, check out my presentation at Prague Security Studies' Summer School in Telč, and especially slides 35 and 37, but the included videos on slides 30-32 might be instructive as well.
Greskovits' speech at Kornai's book launch
János Kornai „From Socialism to Capitalism. Eight Essays.” Budapest and New York: Central European University Press 2008.
Book launch speech of CEU professor Béla Greskovits on May 21, 2008
Ladies and Gentlemen, Dear Colleagues, Students, Guests and Future Readers,
János Kornai wrote a powerful, sophisticated and inspiring book again. I wholeheartedly recommend it to exacting thinkers also including non-academic professionals, such as policy makers, journalists, politicians, diplomats and other educated audiences. The volume has especially great potential to form the research agenda of new generations of social scientists. It encourages graduate students from multiple disciplines - economists and political scientist, sociologists and historians - to not shy away from asking and searching answers even to the biggest, most puzzling questions. Such questions, as once Karl Marx, Friedrich Hayek, Joseph Schumpeter, Karl Polanyi, Albert Hirschman and now János Kornai has taught us, always require intense curiosity but also the courage to „trespass” narrow disciplinary boundaries. In addition, the volume highlights for young social scientists still „in the making” some essentials concerning proper scholarly attitude and behavior.
Clarity, self-reflection and humility
This collected essay volume is an exemplary demonstration of how productive an ambitious research program can be – especially when conducted with a measure of clarity, self-reflection and humility. Such important messages are being delivered as much by the style as by the content of the volume.
a) As to clarity, Kornai is very clear whenever he comes to separating scholarly (positive) statements from normative judgements. This is what he expects from others too. Clearly, for a social scientist that is the right (but not always easy) way to go. At the same time, I truly appreciate that the author does not hide his own personal choices and preferences in cases when not all good things go hand-in-hand: He chooses being a democrat versus an advocate of rapid transformation at any cost (Essay 7), and prefers peaceful and non-violent change over revolutionary ferver and justice (Essay 6).
b) Self-reflection equals honesty and manifests itself in admitting failure or limits of knowledge. Kornai does not hide from the reader where he feels to have been wrong: e.g. in underestimating the speed and acceleration of the erosion of the socialist system (Essay 8). He also points out the questions to which he lacks answer: e.g. where are the boundaries of mainstream economics’ versus the system paradigm’s competence (Essay 8). Surely the point is not simply that honesty is a virtue that scholars must adhere to. Even more important is that self-reflection brings „dividends” for the dissemination of knowledge. Readers will easier trust an author who is sometimes wrong, sometimes has no idea of the correct answer, but admits whenever this is the case. Conversely, if a scholar claims to be right always and on everything, we might start wondering whether s/he has ever been right in anything at all.
c) Last but not least, a degree of humility is indispensable precisely because our world is complex, interdisciplinary research is a demanding enterprise, and our knowledge has its limits – more serious ones than typically admitted.
I feel the need to emphasize these merits of the volume because they are rare in the world of social research populated by too many over-size Egos. Indeed, oftentimes we meet more self-righteousness and arrogance in a single short journal article, which equals a life’s scholarly output, than in Kornai’s collected volume that summarizes only some of his path-breaking contributions. Let me now turn to some of the substantive issues elaborated in the book.
In defense of holistic social science
This would be my shortest way to interprete the general thrust of Kornai’s Eight Essays. I admit that his approach is close to my heart and has been formative of my own profile. Holism – in Kornai’s term the system paradigm - is one of the major (although nowadays not the most fashionable) traditions in social thought. At its core lies „the idea of totality, a social whole that provides the necessary context for grasping particular social dynamics” (Fred Block and Margaret R. Somers, „Beyond the Economistic Fallacy: The Holistic Social Science of Karl Polanyi,” in Theda Skocpol, ed. Vision and Method in Historical Sociology, Cambridge: Cambridge University Press 1984: 62). Kornai, who has been and will remain in future a grand-master for many of us attracted by this kind of thinking in Hungary and abroad, has built up the volume from the first essay to the last one, to introduce, present and defend the holistic approach in a number of ways and at various levels.
a) First, the system paradigm’s analytic potential is demonstrated by Kornai’s pioneering account of the classical socialist system as an ideology- and politics-driven bureaucratically coordinated socio-economic totality (Essay 1). Those who so far have not read his The Socialist System. The Political Economy of Communism (Princeton N.J.: Princeton University Press 1992) certainly should get a taste of that important work by reading this essay. At least in my view, no one else has offered a more convincing and theoretically more sophisticated account of state-socialism.
b) Second, in essays 2, 3 and 4, the system paradigm is adopted as an analysis of social dynamics. The accounts of reform-socialism (Essay 2) and of the genealogy of its very different underlying ideas (Essay 3) are there to demonstrate a key systemic propensity: until a system persists it is able to reproduce its major features. Thus socialist reforms – experiments to mix or combine bureaucratic with market coordination and public with private ownership – repatedly ran into systemic constraints, both ideological and institutional. Taken together, essays 1, 2 and 3 are also useful reminders for social scientists, journalists and politicians who by now have become nostalgic about the socialist system and tend to deemphasize its abhorrent and debilitating features. Furthermore, precisely because social systems are held together by interlocking institutions and mechanisms, they are difficult and slow to change. This is demonstrated in Essay 4 on the example of various policy efforts in the course of post-socialist transformation. Kornai warns radical reformers that being „fast” with every aspect of institutional change simultaneously is impossible and even counterproductive. Since advances in varied areas – e.g. price and trade liberalization versus property transformation - take different time to unfold, uniform haste might produce large waste.
c) The second half of the volume accomplishes three tasks. Essay 5 is an effort to build a bridge between the macro-social historical significance and achievements of Central and Eastern Europe’s Great Transformation on the one hand - and the everyday feelings, joys and anxieties of the individual on the other. Essay 6 and 7 demonstrate how the system paradigm can help comparisons of socialism and capitalism, autocracy and democracy, as well as countries in different phases of transformation. Finally, Essay 8 is devoted to a general theoretical appraisal of the system paradigm. Here Kornai also gives examples of his companions in paradigm. Among them, Marx with 16, Schumpeter 10, Hayek 8, and Polanyi 6 references appear as by far the most frequently (approvingly and critically) cited scholars in the volume.
Although it is not central to our purposes today, but this list made me curious to ask János: If the above are the main companions who are the main adversaries? Are there important thinkers - rather than merely thoughts not readily linked to specific authors - in social science whose views Kornai intensely dislikes and critically rejects?
The main task of Essay 8 is to summarize the system paradigm’s principles, puzzles and methodology, and outline tasks for future research. The latter include encouragement of further inquiry into the micro-, macro, and mega-worlds of social systems: the study of China that is becoming capitalist without being democratic; varieties of capitalism; sub-systems such as the welfare states and their interactions across different political- economic areas. Last but not least, Kornai raises the biggest question that seems the more pertinent as it appears to be entirely out of fashion in capitalism’s current hegemonic phase: If – as both logic and history tell us – there is no such thing as an ever-lasting system, then how to think in a responsible manner about capitalism’s future prospects, potential successors or alternatives? His programmatic outline takes me to the next interesting issue raised in the book.
Relationship between the „mainstream” and the system paradigm
I who felt more than convinced by János Kornai about the merit of the macro-social approach generally, and specifically by his own way of cultivating it in the book, was surprised to sense a measure of disappointment and, perhaps, even defensiveness in his tone and posture – especially when he comes to delineating the place of the system paradigm vis a vis mainstream neoclassical economics.
„It is not a scientific revolution in Kuhn’s sense that I miss. I am not calling for the mainstream paradigm to be superseded by another paradigm. All that is needed, after the great experience of the post-socialist transformation, is for mainstream normal science to recognize more clearly its limitations. It has to understand better what it is competent to do and what it is not” (p. 197).
I thought it would be very interesting for all of us to hear János’s reflection upon the following questions:
a) Why not call for more than merely a modest place under the sun - or what Kornai calls a „complementary role” on mainstream’s flanks - for the system paradigm?
b) One might or might not be convinced about the merit of a „peaceful coexistence” between alternative truths - but is this possible at all in this specific case?
I am the more curious about the answer as Kornai tells his readers:
„I may be wrong, but I have the impression there are very few people in the economic profession who accept this narrowed, more modest domain of validity for the ’mainstream paradigm’. Indeed, there are some who have drawn precisely the opposite conclusion from the change of the system in the 1990s. They mistake the victory of the actual capitalist system over the actual socialist system, for a victory of neoclassical mainstream economics over all other, alternative paradigms” (ibid.)
Let me briefly list the main features of the system paradigm as summarized by Kornai (pp. 190-3) and contrast them with their stylized alternatives (as I understand them) in mainstream economics:
a) methodological holism versus methodological individualism;
b) inter-disciplinarity versus anxiously guarded disciplinary boundaries of what Albert Hirschman earlier dubbed „mono-economics”;
c) focus on institutions and their historical paths versus individuals and (if at all) institutions without history;
d) system-shaped preferences versus given individual preferences;
e) focus on social dynamics versus on social statics;
f) concrete qualitative and quantitative comparisons versus abstract modeling.
At least in my own understanding these two paradigms appear not as complementary but rather opposite to each other in many key attributes of their profile.
Can they both be „half-way right”or wrong? Can they peacefully divide their territories by a demarcation line not passed except with good intentions?
Systems and individuals
Let me address the last important issue that the book made me think about. This is the issue of linking the life of big systems, structures, institutions and processes with the everyday life, hopes, fears and decisions of the small individual or firm. Holistic social science is often criticized for not doing a good enough job in connecting these two fundamental levels of social existence.
I believe that by focusing on the interactions between the micro behavior of firms, workers, consumers and bureaucrats on the one hand, and the systemic macro-logic on the other, the first part of the volume offers a sophisticated and rather complete picture of the intricate links between agency and structure under the socialist system in all its variants.
Yet, I also found that the second part – with the emerging capitalist democracies in its focus – should rather be read as an account of not yet completed work that urges further in-depth inquiry. In concrete, I sensed that the responses of individuals and firms to the challenges and incentives of the new system – and especially their impact and feedback on its functioning, stabilization and prospects - deserve more attention and stronger emphasis. Let me give two examples.
a) In Essay 6 Kornai tells capitalism from socialism, and democracy from autocracy, on grounds of admittedly minimal, formal and procedural criteria (pp. 125-6 and 132). But my feeling is that even the positive – rather than normative – approach should go far beyond the minimal criteria to be able to define systems. Why? By the term “system” we refer to constructs that exhibit a degree of order, stability and durability. Constructs lacking these aspects are “non-systems.” Instead, they might represent states of chaos, uncertainty and disorder. To come up with an analogy, our global climate is a system while the daily weather is not. Of course, the former – as we witness today – can change too, but its changes denote very different processes than the usual capriciousness of April weather. It follows that without having a relatively clear idea of the stability and sustainability of capitalist and democratic orders, it is ambiguous to positively define them as “systems” to begin with. How do we know that a social construct (such as democracy) that seems like a system today, will still look like one tomorrow, if we do not inquire into its degree of popular acceptance and legitimacy upon which its stability ultimately hinges? However, as Kornai himself warns: “The minimum conditions say nothing about the stability of democracy. They allow a test of whether there is democracy in a country at a particular time” (p. 134). In terms of the weather analogy this means that minimum conditions do not allow testing the shape of the “system” – the global climate that might be in deep disorder – they only allow telling something about the “event,” the daily weather. Back to the general question: How helpful are, then, minimal formal and procedural criteria in separating a system from a non-system – and, by implication, one system from another? Surely such criteria might qualify as necessary conditions of a system – but are they sufficient?
b) In Essay 5, János Kornai assesses the outcome of The Great Transformation of Central Eastern Europe in the contradictory terms of success and disappointment.
“I keep two accounts, not one, and do not merge them. On one account, I gladly acknowledge great success on the level of world history: the system created is superior to the old and has arisen without bloodshed, at incredible speed. On the other account, I have the list of good and bad experiences in everyday life: much joy and much pain. I consider it sensible and defensible to say that the events in this region can be considered simultaneously as a success in terms of global historical significance and at the same time in many important aspects a process associated with trouble and suffering because it is a cause of pain, bitterness and disappointment to so many people” (pp. 119-20).
Again, a question similar to the above can be asked. I am not sure to have fully understood the reasons for Kornai’s reluctance to - not so much drawing a balance but - elaborating on the implications of the above contradiction, since this further step would fall within the domain of competence of the system paradigm. As with my previous questions, I think it would be very interesting for all of us to hear János Kornai’s reflections.
My concern - both normative and positive with a stress on the latter - is the same as above. Clearly, the new system’s short and long-term prospects are shaped – to talk with Albert Hirschman - by elite and popular exit, voice, and loyalty, which ultimately hinge upon how these actors draw their own balance between gains and losses, the joy and pain of everyday life. If the new system is cause of pain, bitterness and disappointment on massive scale then how long is it likely to last? Will there be - say in a decade or two – still any world historical success to speak of? I share Kornai’s skepticism about predicting the future. I would rather wish to emphasize a more modest ambition: Simply put, further work awaits us to try and link structure with agency, macro-social systemic processes with human micro-behavior, gains and losses, fears and hopes.
Dear János, congratulations to the new book, and thank you for your guidance and inspiration.
Read more on Greskovits' speech at Kornai's book launchMay 21, 2008
Review of Soros' book
Financial Times published a review of the latest book by George Soros that I have mentioned here.
A successful prophet of the markets
By John Authers
Published: May 19 2008 03:00 | Last updated: May 19 2008 03:00
This was a book that George Soros badly wanted to write. It is probably not what many of its readers expect to read. But it shows that in his deeper thinking about the way markets operate, Soros was several decades ahead of his time.
The New Paradigm for Financial Markets includes Soros' verdict on the credit crisis. He thinks, as has been widely reported, that it is the most severe since the 1930s, and that it marks the end of a 25-year "era of credit expansion based on the dollar as the international reserve currency".
He also offers some solutions, which centre on new regulation for markets, and how to avoid forced sales for US homeowners. A highly entertaining diary recounts his investment moves in the first three months of this year, culminating with the confusion surrounding the fire sale of Bear Stearns.
His insights are clear and concisely expressed. They are worth reading for anyone interested in the topic. But what is most interesting, and obviously engages Soros at an emotional level, is the idiosyncratic philosophy he has developed to explain the metaphysics of how markets work. Even before the emergence of the efficient markets hypothesis, which has dominated academic thinking on markets for at least three decades, Soros had devised his own theory to prove markets were not efficient. He acted on this philosophy as an investor with spectacularly successful results.
That philosophy derived from his undergraduate studies at the London School of Economics under Karl Popper. The "relationship between thinking and reality", Soros calls "reflexivity." It fills the book's centre in chapters which he admits many will find "heavy going". In markets, Soros says, participants' thinking plays a dual function: they try to understand the situation (the "cognitive function"), and to change it (the "manipulative function"). The two functions can interfere with each other; when they doso the market displays "reflexivity".
So an investor's misperception of reality can help to change that reality, begetting further misperceptions. When market actors' decisions affect outcomes, patterns emerge. If a lot of people are bullish about internet stockstheir price goes up. Soros used the theory to predict, and profit from, a series of "initially self-reinforcing but eventually self-defeating boom-bust processes, or bubbles". Each bubble "consists of a trend and a misconception that interact in a reflexive manner".
A key implication of this is that markets do not tend towards "equilibrium", as predicted by modern portfolio theory. And they will not move in the "random walk" promulgated by efficient markets theory, which holds that prices always incorporate all known information and so move randomly in response to new information.
This is important, as the architecture of modern capital markets depends on these theories.And it begins to look as though the credit crisis was the tipping point at which academics and practitioners decided a new paradigm was needed to replace the efficient markets hypothesis. Alternative theories borrow from experimental psychology, advanced mathematics and evolutionary biology and have been built in response to experience in the markets.
The theory of "adaptive markets" - that markets follow trends until they become overblown and then start building up other trends - seems to be gaining ground as an alternative paradigm. Soros' title is a bid for his own theory of reflexivity to become the new paradigm. What is fascinating is how much modern thinking is in line with the theory he developed decades ago.
How does it help explain the credit crisis? Soros believes that a "super bubble" has been formed as the result of a "long-term reflexive process" over the last 25 years. Its hallmarks include credit expansion (boosted by the belief that inflation has been vanquished), and a prevailing misconception, which Soros unsurprisingly blames on Ronald Reagan and Margaret Thatcher, that markets should be given free rein.
There have been numerous financial crises in this period. According to Soros, these "served as successful tests which reinforced the prevailing trend and the prevailing misconception". Thus the current crisis grows in severity because it marks "the turning point when both the trend and the misconception have become unsustainable".
Many will dislike Soros' politics. Others will find the book self-indulgent. He calls himself a "failed philosopher" and badly wants his theory to reach a broader public. It is hard to imagine it would have been published were he not so famous and successful. But his restless intellectual curiosity commands respect. So does his ability to foresee the debate in theoretical finance. He may have been a failed philosopher, but he was a successful prophet.
The writer is the FT's investment editor
Copyright The Financial Times Limited 2008
May 19, 2008
How to pay for ECB failure?
Buiter likes to provoke and think the unthinkable. He does do that exactly in his CEPR piece that ask the question whether ECB can be in need of bail out after taking dubious assets as collateral to its liquidity-enhancing loans. He argues that EU27 governments should come up with the fiscal formula splitting the burden of ECB bailout.
He has a point. However, what seems to be much more likely than ECB going under is one of the medium sized banking groups that control banks in EU10 going belly up. Many of them are big enough in quite a few EU countries to be counted as too-big to fail. So now, you have a bank operation, say in 10, of the EU27 countries in need of bail out. Who is going to pay for it? The home-country government? A syndicate of home- and host-country government? How would they share the bill?
Time is a precious commodity, when a bank is sinking. There might be a window of a few days to agree on the cost-sharing formula, but it is unlikely that governments could strike reasonable agreement under such time pressure. Without pre-agreed formula, the ad-hoc agreement would be a sure recipe for endless disputes, litigations and arbitrations, that would leave noone but bunch of well paid lawyers happy. The political fallout of such disputes on the European integration project would be ugly (Euroskeptics might be the only ones to rejoice).
An alternative would be to let the ECB to step in. Instead of bunch of squabbling governments, the ECB could lead the rescue efforts in multiple EU countries. Given the nature of the financial integration within the EU, shifting the task to ECB would increase chances of a successful solution. However, the ECB would need to pass the costs to governments. At the end, this might be the more important reason to start thinking about the formula for splitting the costs of bail out.
May 18, 2008
To better and more open universities - through reduction of funding? Alias a special Czech way of tertiary education improvement.
The plans for financing the tertiary educational sector revealed last week by the Czech government indicate that Czech universities would experience a real decrease of teaching funding per student. This announcement came shortly after presenting the White Paper for Higher Education: with the aim to make tertiary education accessible and open to broad masses of students. Already between 1995 and 2004, the per capita funding decreased by one third, the biggest slump among the OECD countries. At the same time, more money was promised to private universities, making the Czech Republic one of the few European countries providing such support. The government and its main party, ODS (Civic Democratic Party), apparently do not see any contradiction between the White Paper goals and their financing needs. And so ODS could proudly launch one of the pillars for their regional election campaign last week: promoting and opening education for everybody.
Read more on To better and more open universities - through reduction of funding? Alias a special Czech way of tertiary education improvement.Fresh wind into the Czech higher educational sector?
Czech universities are allegedly too elite-oriented. Only 9 % of children from worker families are studying at university in the Czech Republic, and thus have a six times lower chance to be accepted to university than the children of tertiary-educated parents. The new White Paper for Higher Education is supposed to remedy this situation. The draft presented by Prime Minister Topolánek on 13 May envisages opening the access to universities and their massification. It also introduces new governance and financing mechanisms, which already raised opposition among the rectors. Their main complaint is about the threatening intrusion of the state into university autonomy. The debate launched on May 13 will thus center around the broader questions of university autonomy vs. accountability, responsiveness to the labor market needs, entrepreneurial universities or the relationship between research and teaching and their funding but embed them into the Czech context.
Read more on Fresh wind into the Czech higher educational sector?May 15, 2008
George Soros on the current financial crisis and his new book
George Soros, who is inter alia a founder of CEU, has a new book called "The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means". The title pretty much summarizes the topic, although readers might be surprised by his venture into philosophy (of science) in the first part of the book.
Geoge Soros talks about the current financial crisis in the US. Although he does not say anything new that an informed reader would not know, he provides accessible summary of some key issues.
Soros is trying to get across his point that financial models are build on the assumption that markets tend to equilibrium around which prices oscillate randomly are built on the false paradigm. Instead he proposes an alternative paradigm of 'reflexivity' that has a post-modern constructivist flavor (there are no hard facts in social sciences, because people manipulate these facts while trying to comprehend them and act upon such knowledge).
In the interview, he is having hard to explain what is the difference in his line of thinking and the common sense perception of markets (perhaps it is just financial economists who got themselves disconnected from common sense:). At the end he pronounces Basel II failed idea (because it presumes that banks know what they are doing) and calls for the regulation of leverage.
His new book just arrive to the library; I am reading it know an plan to do some review.
Strongly worded argument for varieties of capitalism in banking
Global financial markets have become “a monster” that “must be put back in its place”, the German president has said, comparing bankers with alchemists who were responsible for “massive destruction of assets”.
.... in banking. Finnacial Times report on the comments of the Horst Kohler, current German president and former head of IMF:
Global financial markets have become “a monster” that “must be put back in its place”, the German president has said, comparing bankers with alchemists who were responsible for “massive destruction of assets”.
In some of the toughest comments by a leading European politician since the start of the subprime crisis , Horst Köhler... called for tougher regulations and the reconstruction of a “continental European banking culture”.
Mr Köhler singled out excessive executive pay, the focus of much public resentment against top managers, as a factor in the subprime crisis and accused bankers of acting irresponsibly.
“The complexity of financial products and the possibility to carry out huge leveraged trades with little [of their] own capital have allowed the monster to grow…also responsible [is] the grotesquely high compensation of individual finance managers.
I do not remember the times when he was at IMF, but from comments at other blogs I gather that he is saying something else in Berlin than he was in Washington.
May 14, 2008
Reversing of oil pipelines
By Andrej Nosko
“Slovaks want to import oil from Czech Republic” reads the headline of a news feature, run on April 15, 2008 by a Czech daily E15. This story has been copied by all major Czech and Slovak news hubs. Even if one subtracts the bombasticism and ‘exclusivity’ common to the lay journalists, this news is surprising and makes one wonder about three things: authenticity of the news on ongoing negotiations, relation of this news to the wider context, and timing of this message.
Authenticity of news
It is difficult to question the authenticity of the information, whether any negotiations are ongoing between Czech and Slovak administrations, since usually these kinds of negotiations are kept confidential. Tomáš Bartovský, the spokesperson of Czech ministry of Industry and Commerce was quoted by E15 as affirming the ongoing negotiations. The direct quote refers to the situation that “would concern solving of potential supply outages,” no further context of this comment is provided. The daily further quotes director of Czech oil pipeline operator MERO ČR a.s . Jaroslav Pantůček, as saying that reversing of pipeline would cost couple of tens of millions CZK (10M CZK approx. 400k EUR), and that Slovaks would have to finance this operation. The daily further notes, unavailability of any further information on negotiations between Slovaks and German operator of TAL pipeline which feeds in the IKL from the Mediterranean port of Trieste, and which would be a necessary condition for the Slovak-Czech deal to have any substance.
Relation to the wider context
The context and timing of this message is rather bizarre. First of all, the idea of reversing Druzhba to supply Slovakia through TAL-IKL is not novel. When the IKL has been conceived in what was back then called Czechoslovakia, it was a preferred project over an idea of connecting refinery in Slovak capital of Bratislava (Litvinov 5.4 MT/yr, Kralupy 3.3 MT/yr.) to the AWPpipeline (annual capacity of 10 MT/yr) leading to the refinery close to Austrian Capital in Schwechat. (capacity of 9.6 MT/yr) which is also supplied by TAL, but unlike the branch leading to the refinery in Ingolstadt, the capacity of AWP is projected only for the needs of Austrian refinery, and thus rather limited for transporting additional supplies. It was preferred, because connector to Ingolstadt would provide for the possibility of supplying also Slovak part of the federation. Nonetheless, this possibility has to be seen in the wider context. The supplying of Slovakia through TAL-IKL would mean prolonging the transit from the oil exporting country, than loading of oil to a oil tanker, offloading the tanker in Italy, shipping it through Italy, Austria, Germany and Czech Republic further to Slovakia. When one puts this barrel of oil into such a globetrotter context, other reversing plans come to the picture as well.
The most interesting is the possibility for Ukraine to reverse its pipeline between Odessa and Brody to supply its western neighbors with oil from the modern port of Odessa should the exports of Russian oil through Druzhba cease.
Furthermore, the context of the reversing of pipelines has the other side or rather, other direction, as well. Czechs are discussing reversing of IKL to export Russian oil since the early times of IKL has been put into operation, and its capacity has been rather underutilized. This would nonetheless entail changing the technology of the Kralupy refinery, since it is currently unable to process high-sulphuric sorts of pipeline-Urals oil from Russia.
Additional option, envisaged by Transpetrol (owned by Jukos Finance) and OMV already in 2003 is the possibility of building the connector to Schwechat, this option is still on the table.
Timing of the message.
Another question that one can be wondering about, is why has this information been released now? Is it just a coincidence, or is it a part of some information game? Just few days before this message was released, Russian PM visited Slovakia, and a major Slovak daily Sme juxtaposed coverage of his visit in Slovak and Russian media. On the first sight it is quite clear, that Mr. Fico (Slovak PM) met a different Russian PM and Mr. Zubkov has apparently met a different Slovak PM than Mr. Fico, since these two people referred about their meeting in such a different ways. Nonetheless, this question should be dealt with in a different post.
by Andrej Nosko
May 13, 2008
From brawn to brain-based economies? Welcome to the Knowledge and Skills section
Have you ever heard the term “knowledge-based economy?“ And about how much knowledge, ideas and skills matter for economic competitiveness - a precondition for economic growth and prosperity? If you are reading this blog you probably have, and probably more than once. Yet what is a knowledge-based economy really? And are the Central and Eastern European countries on their way from brawn-based to brain-based economies?
According to the World Bank’s Knowledge Economy Index 2007, Sweden is the most knowledge-based economy out of some 140 economies ranked. From the countries of Central and Eastern Europe (CEE), Slovenia occupies the 23rd rank, followed closely by Estonia (25th), Hungary (28th), and the Czech Republic (29th). Lithuania, Latvia, Poland and Slovakia did not make it into the first thirty, but are close. What is more, both these Baltic countries made an impressive jump since 1995, according to the index. Romania and Bulgaria rank only behind countries like Barbados, Chile or Malaysia. Slovakia has been the only country out of the CEEs which backslid. index definition, out of the CEEs, Slovenia has the most conducive environment for knowledge to be used effectively for economic (and social) development. This means that its economic and institutional regime provides incentives for efficient use of existing and new knowledge. It has an educated and skilled population that can create, share and use knowledge well. It has an efficient innovation system of firms, research centers, universities or consultants that can tap into the stock of global knowledge and assimilate and adapt it to local needs or create new knowledge. And, last but not least, it has information and communication technology that facilitates creation, dissemination and processing of information. Again, in the CEE environment.
Without going into the nitty-gritty of this index, I used it because it shows a variation in the performance of the countries in the region of my interest. It also indicates that there are interesting stories of change over time. In my blog entries, I would like to tell something more about these stories and about the individual elements of which the Knowledge Economy Index consists. I will write about the skill- and knowledge-formation policies in the countries of the Central and Eastern European region. These include education and R&D policies and reforms but also broader measures targeting the labor market and enterprise support, which foster skill acquisition and utilization in the economy.
However, (and at the same time), my understanding and interpretation of all the above-mentioned issues goes beyond the notion of a high skills economy. Rising productivity in the twenty-first century does not only depend on new technologies, research and development, or the level of funding devoted to education and training, but also on how these are embedded in ´institutional´ and social relations. In line with Brown et al (2001), therefore, I prefer and adopt the concept of high skill society.
Katka Svickova
May 12, 2008
“Powering the land-locked, post-socialist part of the monarchy”
Or Energy (read: economic) security in Central Europe: Czechs, Hungarians and Slovaks
By Andrej Nosko
Why Czech Republic, Hungary and Slovakia in one blog?
There can be dozens of reasons why to write about Hungary, Slovakia and Czech Republic. They all are small land-locked countries (size and geography still matters), they were once united in Austro-Hungarian Empire , in COMECON, (historical legacy matters as well) and now they are the ‘new’ members of the European Union (they are facing the same Brussels) and they are all more, rather than less dependent on the imports of their primary energy sources from Russia . But most of all, these are countries that I have kept a close look at already for some time, these are countries that I have lived in for longer periods of time, and thus can establish a closer familiarity with, beyond an armchair research.
Background – common issues
Let me start by giving you a bit of general introduction into the current issues which will be dealt with in upcoming blog posts. All CEE countries (I consider CEE countries, similarly to the PERG custom to be Visegrad 4, Baltic 3 and SI (CZ, EE, HU, LT, LV, PL, SK, and SI)Nonetheless as stated before, this blog section focuses on CZ, HU and SK) are facing very similar problems: including the post COMECON legacy of import infrastructure from Russia, lack of regional interconnectors, nontransparent energy contracts, and often unclear situation with strategic reserves. Irreconcilable requests for liberalization of energy coupled with requests for state providing almost absolute energy security and calls for greener and cleaner energy supplies. All these countries are also separated from their major suppliers by a string of transit countries, which don’t hesitate to take them hostage to negotiate their own economic interests vis-à-vis the common supplier. All of these countries are relatively small and just recent entrants into the EU bloc. In addition to these common issues, each country has its own specificity.
Czech Republic
Czech Republic has perhaps progressed the most on its way towards primary energy supply diversification. Czech Republic has diversified supplies of nuclear fuel (complicated Temelin story in an upcoming blog post), oil (IKL pipeline), as well as gas (two way connector to Germany). It is also a country with one of the highest share of alternative energy sources in the CEE. The all times pending issue in Czech Republic has been reversing of the IKL pipeline to export Russian oil rather than import lighter varieties from Adriatic through TAL pipeline. Other pending issues are role of state in relation to the (partly) privatized energy companies, and role of ‘renewable’ and alternative fuels and energy supplies. Its recently commissioned Nuclear Power Plant Temelin, in the southern part just over the border with Austria has been a target of numerous protests from environmental activists.
Slovakia
Slovakia, unlike Czech Republic is a situation taker, rather than setter. It has relied on the fact, that it is an important transit country with the major gas pipelines (Brotherhood) from Ukraine to Czech Republic and Austria. The issues that are every once in a while discussed are possibility of connecting to other countries’ plans for infrastructure diversification (mostly the Norht-South connectors), finishing additional reactors in Mochovce Nuclear Power Plant (NPP), complaining (by prime minister Fico ) about a (EU accession) contractual obligation to decommission NPP Jaslovské Bohunice, building of new energy sources (also questions what types - nuclear, conventional (Trebisov), steam-gas, support for ‘alternative’), and finally buy-back of shares of previously privatized (by Yukos Finance) of oil transport company Transpetrol. Since Slovakia has some undeveloped resources of uranium ore, prospects for its mining and the related environmental issues are also discussed.
Slovakia also occasionally likes to entertain herself with, a dream that it can be a bridge between EU and Russia, and this daydreaming has important implications on the policies that are (not) proposed or its lately proposed attempt at some strategizing in the area of energy security.
Hungary
Hungary, similarly to Slovakia, depending on the political forces controlling the steering wheel, also tends to dream of being bridge to Russia. More substantial issues are related to the role of national champion MOL and the still pending takeover bid by OMV, and occasional rumors who actually owns MOL, an important energy sovereign reigning also in Slovakia. Similarly to Czech Republic, some pondering on reversing the Adria pipeline were mentioned. Since Hungary out of the three countries has highest share of gas on its domestic and residential consumption, and both Nabucco as well as South Stream gas pipelines are projected to cross Hungarian territory, the role of Hungary in these projects is and will be vital.
by Andrej Nosko
Coping with the energy import dependence - Problems of economic security in Czech Republic, Hungary and Slovakia
By Andrej Nosko
Decade after the Cold War ended, the first three post-communist countries join North Atlantic Treaty Alliance, epitome of their former enemy. Ceremony in the city of Independence , Missouri was not only to mark the end of the bipolar world, but also the regaining of political independence of the post-socialist countries. The first three forth-runners were joined by others and not long after the EU15 have grown to EU27, with all but two of the new member states remembering COMECON .
Nonetheless, Independence is a bit more than a name of a city in the Midwest United States. It is also bit more than political declarations. Although nobody doubts that EU8 are politically independent, their common historical legacies are haunting them where their economies are sensitive the most. They all share almost complete dependence on the imports of energy supplies. To add to the seriousness of their situation, they are all dependent on the imports of these crucial resources from their eastern neighbor, under whose patronage they lived well over half of the century.
In this blog section, you are invited to follow stories of coping with energy import dependence in the three landlocked countries of Czech Republic, Hungary and Slovakia, which have all started their transition paths in relatively comparable situation, but since have gone a long way in different, but often replicating directions – sometimes learning from each other, sometimes replicating the same mistakes.
The goal of this blog is to offer theory-informed commentary, focusing on the current events, asking tough questions, formulating hypotheses, and putting them into the historical perspective. The sources are listed with each post, some of the general sources will include company and local news, primarily from ISI Emerging Markets, LexisNexis® Academic Country specific news will be derived from Slovak economic weekly Trend with its excellent energy specialist Karel Hirman and his blog, in the Czech republic, the news will be followed from the Portal of Economic Daily iHNed.cz, the Hungarian news will be processed from international and domestic English sources like Budapest Sun and Caboodle . The stories from the EU will be followed in general news, official institution websites and Euractive.com website. The sources for the theoretical aspects of the blog will be elaborated in a separate post.
by Andrej Nosko
Sharing the pie in CEE: Welcome to the Welfare and Inequality section
The transitions that took place in the postcommunist countries of Central and Eastern Europe (CEE) brought about significant changes in all aspects of these societies and in the lives of the people living in them. Yet the challenges and struggles of transition were not evenly distributed. Here is a space for reflection on welfare in the societies of CEE. Among other questions, we will ask:
• Which groups and people face substantial welfare struggles?
• What approaches improve welfare and who benefits?
• What is the state’s role in welfare provision in these societies and amidst these struggles?
• What are the welfare issues that matter today in the societies of CEE?
The transitions that took place in the postcommunist countries of Central and Eastern Europe (CEE) brought about significant changes in all aspects of these societies and in the lives of the people living in them. Yet the challenges and struggles of transition were not evenly distributed. Here is a space for reflection on welfare in the societies of CEE. Among other questions, we will ask:
• Which groups and people face substantial welfare struggles?
• What approaches improve welfare and who benefits?
• What is the state’s role in welfare provision in these societies and amidst these struggles?
• What are the welfare issues that matter today in the societies of CEE?
For some, the struggles of transition inspired an incomplete, but nevertheless real nostalgia for the old system. This type of nostalgia can be seen in this quotation from a Romani woman from a village in Western Ukraine: “In the old system, we had money, but there was no bread to buy. Now the store shelves are filled with bread, but we have no money to buy it.” The questions re-emerge:
• Who can and cannot afford ‘bread’ in the new system?
• How can more ‘bread’ be provided or how can the ‘bread’ be distributed differently?
• What is the state’s role as a provider of ‘bread’?
In some ways, the struggles causing and caused by poverty and inequality are similar around the world, from the most developed to the least developed countries. In other ways, the struggles and approaches to poverty are unique to their context. The historical legacies from pre-communist and communist times create distinct perspectives of and approaches to poverty and inequality. For example, the role of the state in the previous system sets expectations and limitations for the role of the state in contemporary society. The political and economic dynamics of transition present unique challenges for poverty and unique conditions for welfare provision. Decisions made in transition do matter, whether those decisions were made by domestic politicians, international advisors, voting citizens, or others. This blog looks at issues of poverty and inequality in CEE with a particular emphasis on how the state’s involvement in these issues matters and varies from country to country. The key question is: who decides and what determines outcomes of poverty and inequality in CEE?
By looking at the faces of poverty and inequality in this region, reviewing publications and reports on these topics, and accessing the current debates about welfare reform in various countries in CEE, we will have a glimpse the great social struggles that remain in these societies and the various proposed solutions.
Kristin Nickel Makszin
nickel_kristin@phd.ceu.hu
May 9, 2008
Welcome to Regional Development section
Were you ever gazing through the window of a train observing the changing landscape, which, like a giant conveyor belt, kept bringing you still images of villages, towns and cities, remote places and densely populated ones? Did you have an impression that in the end all of this merged into a colourful order of roads, buildings, factories and agricultural lands scattered among rivers and lakes, fields and forests, hills, mountains and lowlands? In short, did you ever notice how human activity varies across geographical space?
Were you ever gazing through the window of a train observing the changing landscape, which, like a giant conveyor belt, kept bringing you still images of villages, towns and cities, remote places and densely populated ones? Did you have an impression that in the end all of this merged into a colourful order of roads, buildings, factories and agricultural lands scattered among rivers and lakes, fields and forests, hills, mountains and lowlands? In short, did you ever notice how human activity varies across geographical space? I am pretty sure that you did. If so, then most probably you also noticed the sometimes really striking differences between the levels of development of two different locations. If you think of your home country, it is very likely that you already have a clear idea about which part of it is well-developed and which is lagging behind.
It is quite common to compare and analyze cross-country differences but it makes a lot of sense to go one level deeper and observe regional disparities as well within a given country. By giving it a further twist, one may also analyze cross-country regional differences of development. This is what regional scientists do and this is also what I am especially interested in. What makes a particular region develop while its neighbour may experience crisis at the same time? What causes the patterns of regional development within one country and what could account for cross-country regional differences? Is this related to the diverse local endowments, state-level development policies, historical and cultural traditions, local entrepreneurial and innovative skills or are there external, transnational forces that have crucial impact on the local level? Most probably all of these factors exert substantial influence on regional and local development but the above list is still far from exhaustive.
Those who study regional development tend to claim that development patterns demonstrate a path-dependent character. This implies that historical legacies and certain crucial events in the past influence the choices made in the present. Briefly, already existing regional disparities are more often being reinforced over time than not. In Central and Eastern Europe (CEE) this issue may be even more salient than in some Western European countries. The experience after the change of regime suggests that the location choices of foreign investors have to a great extent reinforced regional disparities in CEE countries and laggard regions are less and less able to catch up.
However, I am not convinced at all by such arguments. Be it wishful thinking or not, I would like to see regions that are able to overcome their inherited disadvantageous positions. I would like to understand what makes a region successful and what the reasons are for eventual failures. How do local, national and transnational forces interact at the local level and how do they influence regional development? What is the potential role of local governments and their associations in this process? How do national and EU-level development policies contribute to success stories or breakdowns? Ultimately, is it possible to beat path-dependent trajectories?
In this blog, I am going to discuss these issues, focusing on the Central and Eastern European countries, while paying particular attention to the Visegrad group, to Poland, the Czech Republic, Slovakia and Hungary. Special attention will also be devoted to local cross-border cooperations and other initiatives that are “bottom-up” movements aiming at overcoming regional disparities. Given the highly complex nature of the problem, the blog is also intended to be complex and I will attempt to address the above issues from several perspectives. In sum, I invite you, dear reader, for an exciting adventure into regional science!
Gergő Medve-Bálint
Talent on the move : Welcome to EU Migration section
If you are a young Central European, there is a high chance that you have worked abroad, perhaps even higher than the chance that you have worked in your home country. If you are a young Pole, Slovak, Latvian and Lithuanian, the chances that I am right in my guess are much higher than if you are Czech, Slovenian, Hungarian or Estonian. Contrary to traditional concept of migrant, a young Central European migrant tends to stay and work abroad short-term and temporarily. And in spite of relatively good education – most of the time higher secondary or tertiary – tends to get employed in low skilled, low-qualified, or “3D” (dirty, dangerous and dull) jobs.
Why do (some) people move to work abroad - that is - what are the causes of migration – is a question which has occupied academics and policy-makers already for few decades, most of the scholarship being developed on the case of the US. Then, once we (somewhat) understand the causes, a further pressing question to ask is one of the effects of migration, both on host and home countries and communities. Clearly, understanding the causes can better inform us about the effects and it can also help us to understand why – still – majority of people in the world and in the EU does not move. These will be the issues discussed at this blog, looked at from various angles in order to understand what exactly is going on in the EU27 mobility-wise, how to estimate the magnitude, under what conditions to worry or to rejoice of the dynamics we see, which benefits and which problems have we already reaped and what have the firms, individuals and governments been doing and plan to do about it. The lens of my enquiries will come from and will be set on the region of Central and Eastern Europe, which in spite of the ‘demise of transition’ keeps posing puzzles and challenges for the theories developed elsewhere.
So, if you are interested to learn more about the role that Central and Eastern Europe has been playing in the global war on talent (note this down: a catch phrase of this and the coming eras!), why do Slovaks migrate and Czechs much less so, how to understand the role of industrial, education or social policy played out in the context of (not-only) post-EU enlargement migration flows, and about many other issues, please keep coming back. I will offer a cross-country and cross-discipline approach, in a language accessible to everyone (yes, even to economists :)
Lucia Kurekova
Wecome to Banking and Finance Section
Finance is important for economic development. Economists of all stripes and colors consistently find support for this thesis, although they argue loudly on what makes finance work and prevents them form collapsing in a spectacular crises. The EU10 experience in last 20 years actually support this view; finance were key to successful transformations in new Europe, but it has also seen its share of systemic meltdowns almost in every single country.
In EU10 finance means banks. Although financial markets keep developing, they are dominated by banks themselves and this is unlikely to change. The EU10 banking sectors developed towards the universal banking model that will keep banks in the center of economic affairs.
EU10 banking sectors are rather unique. Between 60 and 90 percent of banking sector assets are controlled by a few foreign strategic owners. Although other emerging markets are catching up, nowhere else is the role of transnational banks so profound. This brings a host of questions worth exploring. Does it matter that banks are foreign controlled? Probably not, but the first crisis will test this proposition. Do banks contribute towards economic development? They do, but less than traditional national banks used to; they increasingly finance mortgages and consumer loans, whereas investments are FDI financed (or come as cross-border intra-firm finance).
Is the contagion form the current financial crisis going to get EU10 banks into troubles? Probably not. Can local (host-country) regulators ensure prudential behavior of transnational banks? Probably not; although they remain responsible for safety and integrity of banks in their jurisdiction, they have little leverage over large banks and their home-country supervisors in other EU countries. Then, should the banking regulatory regime switch to supra-national EU level? Probably yes.
These are just some question in the development - finance - regulation&governance nexus, that I explore in my research and thus would explore in this blog. Looking forward to your comments.
Zdenek Kudrna
Join us at the CEU graduate conference
Join us at 4th CEU Graduate Conference in Social Sciences on Global Transformations: Integration, Transition and Development June 20-22, 2008 - CEU, Budapest, Hungary PERG will organize two panels: 1. Political economy of foreign direct investment 2. Diversities of Central and Eastern European Capitalism Application are closed, but if you are around in Budapest
you are welcome to join our panel
