I've written much on Eurasian Integration, and it's really gone into overdrive with the Ukraine crisis. Here's a new piece for Russia Direct on how Ukraine is killing integration... and how China is benefiting.
Courtesy of Ukraine, which has not just gone off the deep end but is actively attempting to become the poorest nation in Europe, a list of how to completely and utterly botch an economic transition:
Sounds like a perfect recipe, one that Ukraine is following to the letter. Ukraine - the country of the future.
But, living in Moscow really prepares you for it! I'm here as a visiting researcher with the Bank of Finland's Institute for Economies in Transition (BOFIT) through December, and settling in nicely today. I haven't been to Helsinki since 1996, and so was pretty surprised at how small the city seemed. Once again, living in Moscow appears to have warped my view of the world.
Yesterday was Constitution Day in the United States, honoring the signing of the Constitution on September 17, 1787. When we talk about political institutions, scholars often focus on constitutions and constitutional law as the sort of ur-political institution: after all, constitutions are generally "founding documents" that lay out the rules of the game and describe the distribution of political power within a system. Of course, constitutions can be amended, but there is no better example of a "Type II" policy - a policy that is directly related to institutional building. And like institutions themselves, constitutions (and Type II policies in general) are mean to be fairly solid and unchanged, if not immutable. Indeed, looking at constitutional changes is often a great proxy for political volatility (as shown in Argentina).
Of course, this doesn't mean that constitutions are actually restraining in reality, for administration can always thwart the designs of a piece of paper; a court can aggrandize power for itself to "interpret" the constitution; or normal political processes can entirely subvert the supposedly eternal truths of a constitution in favor of transient political expediency. Moreover, a constitution itself can be nothing more than a political ploy, a way to show the world that democracy has been achieved while acting counter to its tenets. Of course, constitutions also need not be politically or economically liberal in any way shape or form: given that a constitution is written by political elites ascendant at the time, it can enshrine such anti-liberal attributes as slavery or restricted voting to a certain class/race/gender.
Moreover, the economic effect of constitutions is debatable; my own preliminary research in my book showed that constitutions really didn't matter in transition economies for many economic metrics, but this is somewhat to be expected (after all, constitutions shouldn't really matter in the short-term, and 20 years was definitely the short-term). We should really only expect to see constitutions have effects in the medium- and especially the long-run, as institutions develop under its protective umbrella. Of course, others have done much more intensive research in this area (Persson and Tabeliini literally wrote the book on this), but this has been somewhat limited to the structure of the political system that is created under a constitution; in the citation above, P&T find that presidential systems have smaller governments, while parliamentary systems have more persistent fiscal outcomes. Much more work needs to be done, especially in seeing if constitutions actually do restrain government in more than just size - based on the US, and given its explosion in size of government since the mid-1960s (but especially over the past 10 years), it is likely that current political processes can always undermine past ones.
While the OECD is still pushing for tax competition laws (i.e. harmonization of legal norms and policies regarding taxes), there is some sanity in the EU - luckily a legal advisor has told EU finance ministers that their idea for a "financial transaction tax" (the renown Tobin tax) just can't work as it's discriminatory. Left unsaid - it's a terrible policy and threatens financial intermediation throughout the region.
According to an article in FT.com, country risk is no longer on the minds of investors in European stocks. Indeed, judging by the investors and strategists they polled, it looks like a sectoral focus is now outweighing the country-focus which prevailed during the worst days of the Eurozone crisis (which, by the way, I agree with Kenneth Rogoff that the optimism about the end of the crisis is misplaced). Is this a good thing? Probably not.
Although the article tries to argue that a new form of pragmatism is taking hold that looks at firm- and sector-specific trends and valuations (which is good) rather than a narrow-minded focus on country risk (also good), the biggest risks to European companies remains politics and bad policy. There are not going to be gigantic shifts in pharmaceuticals or agro-processors in the next 12 months, but elections can be won and lost and taxes hiked precipitously. Given the fact that Europe isn't out of the woods yet, and that investors seem to be blinded by easy liquidity from the Fed and the ECB, ignoring the fragility of Ireland's recovery or the still-ballooning debt in Spain and Portugal is a recipe for disaster. Besides, as a recent paper noted, bad news tends to hit fairly quickly and shake up financial markets more than good news, so putting on the blinders due to country risk is just asking for prolonged and more severe shocks.
Dr. Christopher Hartwell is an institutional economist and President of CASE Warsaw. All commentary on this page is exclusively his own and in no way represents the views of CASE, his wife, his dog, or anyone else. Especially not his wife or his dog.