With Eduardo Mufarej, Founder of Renova, 17 March 2022

What makes an effective politician? Politicians come from all walks of life but the vast majority of them do not have any formal training in political science or in government or in the tasks and tools of being a politician. Renova, an innovative non-partisan non-profit organization in Brazil, seeks to change that and to also improve governance, by training aspiring political candidates. In this podcast, Sami J. Karam speaks to founder and chairman Eduardo Mufarej about Renova’s mission, its training curriculum and its prospects.

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How to Tax a Billionaire (or Not)

Our institutions created centibillionaires and are now trying to contain them.

In Ayn Rand’s novel Atlas Shrugged, a group of high-achieving industrialists have had enough with being exploited (in their view) by “parasitic” collectivists and “second-handers”. They withdraw to a perfect community Galt’s Gulch aka Atlantis where they can live in peace and prosperity with each other, far away from the do-nothing (in their view) populace and according to their own laws and beliefs.

Because Rand mercifully never wrote a sequel (the original has more words than either War and Peace or Les Misérables), it is not clear whether these supermen and women lived happily ever after or whether, after enjoying the initial high of sticking it to humanity, their infinite egos led them to devour each other to oblivion and Galt’s Gulch disappeared Roanoke-like with no explanation left for posterity. That is, no explanation other than the obvious which is that a healthy society requires a fuller range of social strata and cultures, not only a super-stratum and a monoculture, in order to survive and to prosper.

No escape to Galt’s Gulch is currently offered to today’s billionaires who have so far opted to remain in the real world though they contend daily with insults and attacks from many quarters. It is necessary to say “so far” because some have been toying with otherworldly escapes, be they monetary via cryptocurrencies or interplanetary via emigration to planet Mars. Cryptos would free them from the gravity of central banks. And space from the gravity of Earth. After all, in our culture, “to leave it all behind” is nearly synonymous with high quality living. And to disrupt, to reject the dominant paradigm, are seen as ways to create new wealth.

Bernie vs. Billionaires

While still among us on earth however, even the ultra rich deserve… empathy. Or at least some recognition for their achievements. Their defining characteristic, shorn of all social and economic artifice, remains their humanity, not their wealth. Yet it is assumed by the angry-egalitarian political complex that it is fine to insult and harass a billionaire, as if their humanity was inversely proportional to their wealth. Starting with Bernie Sanders for example, some members of Congress have stated plainly that “billionaires should not exist”.

Because there are among the people mob inciters who amplify their message through social media, this slogan could be interpreted as incendiary, or as unsafely ambiguous. Does ‘billionaires should not exist’ mean that we should tax them until they are no longer billionaires? That would entail taking away 99% of some billionaires’ wealth. Or does it mean that we should limit their growth plans when their wealth hits the $999 million mark? Or force them to give away their wealth to charity? Or something else?

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Lebanon in Crisis, with Joe Issa El Khoury

“Historically, Lebanon prospered as a result of inflows of people and funds – people who came to take refuge in Lebanon and also funds. If we look at the post World War 2 period when modern Lebanon became independent and also at previous periods that Lebanon went through – and I mean over the past 100 or 200 years – one thing that was common to all these eras is its liberal economic system that was adopted by all who lived on this land. The constant was the liberal economic system.”____ Joe Issa El Khoury

Sami J. Karam speaks with Joe Issa El Khoury, a Beirut-based financier, about the tragic events that have unfolded in Lebanon since 2019. A sharp fall in the currency, a banking freeze, a political crisis, hyperinflation, and widespread street protests made 2019 a difficult year. But these events were then compounded by the Covid-19 pandemic and the explosion in the port of Beirut in 2020.

Issa El Khoury explains the sequence of events that led to the present, and offers a possible way forward.

Topics include:

  • 0:00 Introduction of Joe Issa El Khoury
  • 2:25 What is it like right now on the ground in Beirut?
  • 8:33 Why did Lebanon have a golden period in 1945-75; why was it later so prone to crisis?
  • 17:40 The Rafik Hariri era and the return of growth 1990-2005
  • 20:00 What explains the weakness of the Lebanese state: geography and demographics
  • 26:30 Lebanon’s diversity as a source of wealth; Example of Lebanese cuisine
  • 30:40 Crossing the line from a laissez-faire economy to a crony economy
  • 35:05 The real estate boom of 2007-11
  • 36:55 The impact of the Syrian civil war
  • 39:10 Crowding out the private sector
  • 44:10 The proximate factors that led to the meltdown
  • 46:15 The current condition of the banking sector; Role of the Central Bank
  • 51:00 Will depositors suffer a haircut? The Lazard and other plans
  • 54:45 Talk of privatization of state assets
  • 59:45 Political patronage in the public sector
  • 1:01:50 “All roads lead to Washington DC and the acronym IMF”
  • 1:05:20 Political reform and the role of the diaspora

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The Boom in Certainty

Sinclair Lewis called it “the sedate pomposity of the commercialist”. Now it has spread to many parts of society, not always in its sedate form.

Back in our final days as architecture students in Austin, our class had a farewell gathering with a professor who had been a valued mentor to several of us. As was habitual on such occasions, the professor was discussing with us the work of various architects when the subject of a newly-constructed building came up.

“I hate that building”, one classmate said flatly.

After an awkward silence, the professor mocked: “you mean, strongly dislike?” Off guard, the offending party protested that his use of the word was innocuous then and there. The professor conceded as much but explained that it was a visceral word, the kind of word that forestalls further discussion and that hardens the speaker’s and listener’s opinions. It is difficult to walk back or to change your mind from “hate”, and easier to do so from “dislike” or even from “strongly dislike”, he argued. His advice was to leave in one’s words an open path for retreat, in essence to never burn one’s rhetorical bridges.

This led to another discussion about certainty and about people who speak with certainty. The professor said that he had a reflexive dislike for certainty and that he felt a profound distrust towards people who speak with certainty. There is very little that is certain in life, he said, even among things of which we are convinced at a given point in time. Opinions change, science changes, research advances. New discoveries change our beliefs. Knowledge doesn’t just flow or evolve gradually like a river; it shifts laterally and sometimes suddenly like an earthquake.

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Talking About Cities, with Aaron Renn

“You go to some of these places [Midwestern cities], the question they ask when they meet you is ‘where did you go to high school’?… The fact that where you went to high school is a social marker places you in a community. You go to Washington DC and nobody cares where you went to high school… In New York, they ask ‘where are you from?’ because it is assumed that you are not from here. Some of these places in the Midwest… need more outsiders to come in because outsiders are the natural constituency of the new.” _____Aaron Renn

AaronRennAaron Renn, a Senior Fellow at the Manhattan Institute, speaks to Sami J. Karam about US cities. What makes the large coastal cities so successful? What are the prospects for mid-sized and smaller cities in the Rust Belt? What is the current state of play for mass transit? What role does immigration play in the development of cities?

Among the cities discussed, New York, Los Angeles, Chicago, Boston, Washington DC, Seattle, Houston, Dallas, Austin, San Francisco, Charlotte, Minneapolis-St Paul, Nashville, Columbus, Cincinnati, Pittsburgh, St Louis, Cleveland, Detroit, Madison, Iowa City, Rochester (MN), Singapore, Paris.

Topics include:

  • 0:00 Introduction of Aaron Renn
  • 1:15 What makes the large coastal cities so successful at creating wealth?
  • 8:30 Can a large city become dominant in a new sector? (e.g., New York in tech)
  • 13:00 How would you categorize non-coastal cities in terms of their prospects?
  • 16:30 Why some cities are struggling while others are restructuring successfully
  • 20:55 Will some smaller cities turn into ghost towns within twenty years?
  • 26:35 What is going on with Detroit’s recovery?
  • 30:40 The role of new immigrants in the development of a city
  • 36:50 Immigration policy in Canada and Australia compared to the US and UK
  • 43:50 What is the future for mass transit?
  • 48:00 The lack of city to city benchmarking in infrastructure costing and execution
  • 53:40 Is there anything going on in high-speed rail, other than in California?
  • 59:40 The decline of trust in institutions and the problem of cronyism.

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The Cure for Inequality is More Laissez-Faire

That means less cronyism and more competition.

“Inequality is not necessarily bad in itself: the key question is to decide whether it is justified.”____ Thomas Piketty in Capital in the Twenty-First Century.

Piketty’s words read like a premise that is only half right, followed by a problematic corollary. Reasonable people will agree that some inequality is not only “not necessarily bad” but also very desirable and very necessary in order to stimulate the economy’s entrepreneurial and innovative spirits. Further, if some inequality is desirable, how much is enough and how much is too much? And who gets to decide?

Clearly, there will never be a consensus on this. And it is not a satisfactory solution that the majority party would decide for the next four or eight or twelve years. The back and forth dominance of one party over the other would mean that any measures enacted to combat extreme inequality would at best amount to a feeble and erratic effort instead of a long-term cure, while the underlying problem gets larger with every electoral cycle.

To make things worse, both of the major parties in the United States are mistaken to ascribe inequality to an excess of capitalism. Democrats claim that growing inequality is the result of unbridled ‘wild west’ capitalism. And Republicans argue that it is a mostly acceptable byproduct of capitalism. But extreme inequality is in fact caused by insufficient competition. Given  that competition is the lifeblood of capitalism, it follows that inequality is the result, not of capitalism, but of a lack of capitalism.

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Purity or Universalism?

This article first appeared at Quillette.

A few days after his recent passing, the Manhattan Institute reposted a speech by V. S. Naipaul from October 1990. The title, Our Universal Civilization, captured the triumphal and optimistic spirit of that moment, nearly one year after the fall of the Berlin Wall. In order to render this universal civilization in greater relief, Naipaul related the following about his travels in Asia [emphasis added]:

“Traveling among non-Arab Muslims, I found myself among a colonized people who had been stripped by their faith of all that expanding intellectual life, all the varied life of the mind and senses, the expanding cultural and historical knowledge of the world, that I had been growing into on the other side of the world. I was among people whose identity was more or less contained in the faith. I was among people who wished to be pure.”

If we had read this paragraph without knowing its date or the subjects’ actual geography, religion, and history (in this case colonized non-Arab Muslims), we might have surmised that Naipaul was talking about parts of America and Europe that he had perhaps visited in the months preceding his death. “People whose identity was more or less contained in the faith” could easily apply to certain constituencies in the West today, the more so if one allows some latitude in the definition of the word ‘faith.’

Nearly 30 years after he delivered this speech, Naipaul’s assumption that this was primarily a religious or Muslim phenomenon seems quaint. Today, we can see that the wish to be pure has emerged in opposition to universalism in many parts of the world including our own. We can no longer claim that it is just Islam that has grown resistant to the universal civilization envisioned by the West in the late twentieth century. Some groups within the West itself have also rediscovered their own craving for purity.

In his 1996 book, The Clash of Civilizations, Samuel Huntington was already dismissive of Naipaul’s idea of a universal civilization:

“As is often the case with marginals or converts, among the most enthusiastic proponents of the single civilization idea are intellectual migrants to the West, such as Naipaul and Fouad Ajami, for whom the concept provides a highly satisfying answer to the central question Who am I? “White Man’s n___”, however, is the term one Arab intellectual applied to these migrants, and the idea of a universal civilization finds little support in other civilizations. The non-Wests see as Western what the West sees as universal. What Westerners herald as benign global integration, such as the proliferation of worldwide media, non-Westerners denounce as nefarious Western imperialism. To the extent that non-Westerners see the world as one, they see it as a threat.”

Here too, at the end of this excerpt, we find a connection to those in the contemporary West who similarly denounce global integration and worldwide media. Ironically, today’s reality devalues Huntington’s clash of civilizations to little more than a willful construct, a mirage, and an inadequate template. The clash today is not between different civilizations but within each civilization, not between countries but within each country. It is not across borders, but across other fault lines within those borders.

Looking all the way back to 1900, we can theorize that universalism and the wish to be pure have each been dominant at different periods, especially in Europe. Before WW1, there was a period of universalism and globalization brought about by faster communications (the telegraph) and faster transportation (the steam engine, the train, the automobile). Then there was a 30 year period where the wish to be pure gained more and more adherents, some for ideological purity (communism), others for racial or nationalist purity (nazism, Francoism).

After the widespread destruction of WW2, the United States was so dominant that it could impose its view of universalism on the world, in Europe and Japan first, then on the former Soviet bloc after 1990, and ultimately via trade on China and other emerging markets too. This surge in universalism ended in the decade of the 2000s, with disillusion after the Nasdaq crash of 2000-02, the attacks of 9/11, the Afghan and Iraqi wars, and the 2008 financial crisis. As a consequence of these events, we are now dealing with a turn in the historic trend away from universalism towards the wish to be pure in many parts of the world. As was the case 100 years ago, this wish has two main arms—one for ideological orthodoxy and the other for ethnicity and nationalism, something we may call localism.

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Orthodoxy and Localism

The world’s main competing social and political blocs can therefore no longer be understood as a historic confrontation between East and West, North and South, Socialism and Capitalism, or Christendom and Islam. Although some politicians remain wedded to them, these models do a poor job explaining the present state of play. The main competition now is between universalism and the wish to be pure. Purity manifests itself in thought or ideological orthodoxy—polarized media such as Fox and MSNBC and college campuses—or as geographic localism, as seen in the resurgence of nationalism. By contrast, universalism is about the competition for ideas (not orthodoxy) and about globalization and diversity (not localism).

The orthodoxy is motivated by a ‘progressive’ belief that society is perfectible and that any backsliding in the ‘wrong’ direction is unacceptable. Adherents to this belief ascribe a righteousness and inevitability to social change usually reserved for scientific discovery.

The localism has its roots in disenchantment with globalization, nation building, mass migration, rent-seeking cosmopolitan elites, and international institutions. Its main effect has been to re-energize a nationalism and a populism thought to have died in the West at the time of Naipaul’s speech. As Anne Applebaum remarked in a recent essay about Poland for the Atlantic,

“Sooner or later, the losers of the competition were always going to challenge the value of the competition itself.”

The two principal building blocks of universal civilization are globalized competition—not only in goods, but also in ideas—and freer movement of people. But competition creates winners and losers. The winners have often been individuals or groups with a weaker connection to ideology or to geography (say investment bankers who can work as effectively in New York, London, or Hong Kong). By contrast, the losers have typically had a stronger connection to ideology or geography or both and have increasingly sought to capitalize on that connection.

Of course, universal civilization committed many errors of its own that contributed to its fall from favor. Rising inequality and rampant cronyism have played a part in convincing people in many countries that globalization does not share its wealth widely and does not spread its opportunities universally. So, Naipaul was right to identify a “wish to be pure” but he was wrong to believe that it appeared in only a few places that were culturally different from the West. We have it here, on the Left with orthodoxy and on the Right with localism.

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Origin of a Wish

But where does this wish to be pure come from? It is a way to change the rules of the game. If you can’t win at game A, switch to game B where your odds may be better. If competitive capitalism doesn’t deliver for you, switch to cronyism or to socialism. If the competition of ideas is a strain and you resent the financial success of the more competent, switch to the cleansing orthodoxy of a party line. If globalism and diversity don’t work for you and you envy the progress of the immigrant or minority, switch to localism and ethnocentric nationalism.

After the spoils of competition have been distributed, those who consider that they got less than their just deserts have an incentive to question why and how somebody deserves something. In their upended logic, if winners have deserved more by going to college, then there is something wrong with college; or if it looks ex-post that it was helpful to some people to be part of a certain ethnic group, then there is something wrong with that group; or if intellectual property (software, media, technology) has delivered more wealth than real property (real estate, extractive industries, gold), then there is something wrong with intellectualism.

There are two main ways of deserving:

> Merit: This is about competitive performance, hard work, and competence. It is the ethos of universalism.

> Faith and Identity: This is about loyalty to God or to the group. It is the ethos of the wish to be pure.

The rewards of merit are largely uncontrollable, especially in a hyper-competitive society. But faith and identity can deliver for people who organize in groups to restrict competition from outsiders.

There is a global trend today of people in many countries looking for a shortcut towards success by reinforcing their identity, through either orthodoxy or localism. This pursuit of purity holds that if a person were truer to his identity, then his mind and body will be cleansed of the toxins that contribute to his misery. If a believer is more religious, his co- religionists and his god will reward his devotion, respectively; if a nationalist is more patriotic, his nation will reward his loyalty; and if a person of a certain gender or race is more representative of his demographic, his community will reward his solidarity.

This mode of thinking is no longer chiefly found in developing countries or god-fearing theocracies. The global wish for purity is nearly everywhere and it is spreading.

Purity for the Many

The main problem with the quest for purity is that it is fine in one’s own home or church but it becomes a problem in the public square, which—by virtue of being inherently diverse and competitive—is configured to resist the wish to be pure. In all but the most homogeneous countries or regions, the desire for purity is difficult to reconcile with competitive politics.

Yet it is very much present in politics today, here and abroad. In the United States, both parties cater to constituents whom they view as having a purer American identity. Both parties try to thwart competition and to reinforce group identity. The battle lines are drawn among the 80 to 90 percent who constitute the middle class and poorer segments of the population. Increasingly, they are called upon to choose between two forms of purity, the more ideological orthodox vision that seeks to equalize outcomes as much as possible in the name of fairness, diversity, and inclusion, or the more traditional localist vision of a mainly white, mainly Christian America that is increasingly challenged by shifting demographics.

Cronyism for the Few

Meanwhile, the wealthier 10 to 20 percent of the population have done a superlative job of taking care of themselves. They speak the language of universalism but are increasingly involved in anti-competitive rent-seeking occupations and hoarding the American dream for themselves and their children. Unlike the rest of the population, they have access to the best education, plum jobs, and huge pools of capital.

Upon closer examination, each proposition of purity is a subterfuge to harness the backing of the multitude while a small percentage of the population consolidates ever more power and wealth. This may sound like cynicism at first but this template of cronyism for the few, purity for the many fits the data in most countries in the world. The main thing that the cronies at the top have in common with those seeking purity is that they both want to limit competition in one form or another.

In a recent article titled “America is moving toward an oligarchical socialism” Joel Kotkin provides a good example of this phenomenon:

“Particularly since Donald Trump’s election, the leaders of corporate America— especially in tech and finance—have merged with the Democrats. They appeal to progressives by advocating politically correct views on immigration, gender rights, and climate change, while muzzling conservatives both inside and outside their companies”.

If we want to be honest, socialism, capitalism, theocracy, and nationalism have all shown themselves to be flawed. Socialism and its more pernicious extreme, communism, are unattainable notions that cannot accommodate human beings’ natural competitive drive for more personal comfort and efficiency. Capitalism has had its periodic moments on center stage but its Achilles’ heel is that it has nearly always been corrupted by cronyism.

The wish to be pure exemplified by ideology, tribalism, nationalism, and religious orthodoxy promises a better tomorrow but never delivers except for the leading cronyistic elites. It promotes at great cost an illusion of purity that eventually wears thin except for the more ascetic members of society. By then, it is too late as the few at the top now command all the levers of money and power and have no qualms decapitating and ruthlessly suppressing any revolt that dares extend its neck.

This is the story of the present. Nearly all constituencies are working to limit competition, the lifeblood of universalism. In an increasing number of countries, a small entourage of cronies are trying to hoard wealth and power while at the same time selling a sterile purity to the people. Universalism and competition will be on their back legs for as long as the people fall for this destructive manipulation.

Later, we will once again heed the words of John Stuart Mill:

“It is hardly possible to overrate the value, in the present low state of human improvement, of placing human beings in contact with persons dissimilar to themselves, and with modes of thought and action unlike those with which they are familiar… Such communication has always been, and is peculiarly in the present age, one of the primary sources of progress. To human beings, who, as hitherto educated, can scarcely cultivate even a good quality without running it into a fault, it is indispensable to be perpetually comparing their own notions and customs with the experience and example of persons in different circumstances from themselves.”

Cronyism and its Scapegoats

Cronyism destroys trust and assigns the blame to scapegoats of its own creation.

Only a fiercely committed left or right-winger would fail to recognize that there is today a social and political divide that does not easily fit within the traditional mold of left vs. right. If, loosely speaking, the left leans socialist and the right leans capitalist, there is a third branch, cronyism, that is characterized by the rising power and wealth of rent-seeking industries and individuals. In the past, this branch was dominant mainly in poorer countries with weaker institutions. But today it has also gained significant strength in a number of developed countries, including the United States.

In fact, if the Republican Party has been hijacked by Trumpism, as some allege, then we could say that capitalism has been similarly hijacked by cronyism. In our view, this parallel is nearly seamless, given that the GOP is traditionally pro-capitalism – in words if not always in deeds – and that the incumbent administration is largely populated with captains of rent-seeking industries. Read more

Immigration and Trust

Do we only really trust people who are like us? And if so, is that a mistake?

Distrust of the unfamiliar and the foreign is a natural survival mechanism for most species, including the human species. But, if empirical evidence is worth anything, a reflexive distrust of the foreigner cannot be said to be equally benign. Distrust sows fear. And fear plays in the hands of demagogues and can turn into a contagious pathology with numerous undesirable consequences.

One of these consequences is an excess of caution. Safety is important but an obsession with safety is counterproductive. Locking your door at night is prudent, but fear of ever leaving your house can lead to atrophy and other physical and mental degradations. As in most things, a fine calibration between the desire for safety and the need to accept minimal risks is likely to yield the best outcome. Read more

Cronyism Damaged Venezuela before Chavez

Venezuela is bankrupt, having just defaulted on three interest payments. And much of the world is pointing fingers at the socialist policies of Hugo Chavez and those of his successor, the incumbent Nicolás Maduro. This laying of the blame is not wrong but it is incomplete.

The kindest thing you could say about Mr. Chavez is that he was a talented demagogue who brilliantly identified his opportunity and judiciously seized his moment. But, as previously argued by Fred McMahon of the Fraser Institute, Chavez did not start Venezuela’s downward spiral. He was instead one of the final acts in the country’s decades-long devolution from laissez-faire capitalism to cronyism and finally to socialism. Cronies undermined Venezuela’s economy for decades and opened the door to Chavez’s socialism. Read more