To be clear, BP must carry substantial blame for what happened. And given the very public pressure on it, it is clear that BP will pay both now and later. Indeed, President Obama made it clear that the escrow account is “not a ceiling.” But there is plenty of blame to go around beyond BP. What of the others?

Let us start with the oil industry itself. BP has been criticized for being totally unprepared to handle this oil spill, despite having submitted contingency plans for a much larger spill. Yet, virtually the same contingency plan, prepared by the same consultancy, was submitted by all other companies. In short, nobody in the industry ever expected or planned for this spill.

What about the regulator? BP might have been at fault for not being prepared, but the regulators did little better. It is, after all their job to hold oil companies responsible for their preparedness and safety standards. But rather than ensure accountability, regulators have ensured confusion prevails, in order to keep the oil flowing. As the NY Times reported:

Deepwater rigs operate under an ad hoc system of exceptions. The deeper the water, the further the exceptions stretch, not just from federal guidelines but also often from company policy.

So, for example…when company officials wanted to test the blowout preventer, a crucial fail-safe mechanism on the pipe near the ocean floor, at a lower pressure than was federally required, regulators granted an exception, documents released last week show.

And finally, what about the American people themselves? Deepwater oil exploration started in the Gulf in the 1970s, but expanded in the 1990s after new technology made it possible. But it was also encouraged by federal incentives. At the heart of that expansion has been America’s addiction to oil. This is a general and global challenge – as easily accessible oil reserves are depleted, oil prices go up and US citizens complain about their commute getting more expensive. The US government then encourages oil companies to go deeper under the ocean and further into the wild for oil, and simultaneously encourages them to ignore its own regulations. 

Of course, when things go wrong someone must be blamed. So much the better if that evil is foreign and not the American President or the people themselves. Thus, rather than blame regulators who granted BP the fatal exception, President Obama has taken to bullying a foreign owned corporation. Quick to find someone to blame, and to score political points, the US Congress too has already found BP guilty. Yet, Congress conveniently ignored that for every safety rule that BP might have broken, it had federal permission to do so.

Ironically, the American government and industrial lobby have in the past protected American corporations guilty of massive damage abroad. As John Elliot points out, the US protected Union Carbide and its CEO Warren Anderson in the aftermath of the Bhopal gas leak in 1984.

Since then Anderson has been protected by the US business-political establishment from being extradited to India to answer for the appalling human and environmental damage wrought by his company’s gas leak in Bhopal a few days earlier. That was one of the world’s worst industrial disasters, leading to the death of over 5,000 people and continuing ill-health of over 500,000.

Now that same American establishment that has protected Anderson has been pillorying Tony Hayward, BP’s chief executive, following BP’s oil leak in the Gulf of Mexico. The tirade has been led by President Barack Obama, who has been behaving like a spoiled child for the past 50 or so days, casting around for someone to blame when it is his own officials who are primarily at fault.

The real tragedy in all of this is that the focus on finding someone to blame will prevent a fix of the problem. In particular, two issues will remain unresolved.

First, the regulators that encourage risky oil drilling will not be held accountable. By finding a single organization to blame, the US President has made it easy to explain the disaster: “BP was reckless.” Yet, such a simple explaination hides the truth – that at fault was a complex system of oversight and ownership – and prevents fixing what does not work.

Second, and more important, it hides the fundamental fact from the US public – that deepwater drilling is dangerous. If the US wants to avoid another Gulf disaster the only way to do that is by not drilling in the Gulf. And the only way to do that is to reduce America’s dependence on oil. Of course, that requires some difficult changes in America’s lavish lifestyle. But that is hardly a message President Obama can deliver to his public – that it is their lifestyle that led to the Gulf’s oil spill.

In “What’s wrong with democracy” Loren Samsons points out that a democracy requires leaders that are willing to challenge the popular will. This is a startling contrast to modern political leadership, as demonstrated by President Obama. The tragedy is that the political posturing of Obama and Congress will force us to repeat the mistakes that led to the Gulf oil spill. And those that are really responsible for it will not be held accountable.

Writing on Desicritics on the Women’s Reservation Bill, Sandeep Bansal provides us with the equivocal conclusion that “reservation is an easy shortcut,” that while laudable in parts must have “proper backup steps to have any significant impact.” As a counterpoint, I believe it is worthwhile looking again at the very valid questions he raises, viz:

• Do we need reservation for women?
• Is reservation really needed at the highest level?
• Are reservations really going to make any difference?
• Do we need sub-quotas?

Do we need reservations for women?

That, of course, is a matter of opinion. More important is the question of why we might want reservations. Two reasons come to mind.

At the level of principle, this might be because in an ideal, fair, and just society lawmakers would represent their consituents – in the ratio of the constituents. Ideally, that representation should emerge naturally – not by legislation. But as Sandeep points out, reservations are one way to empower women and to change attitudes, so as to lead to that natural order.

A second reason, often overlooked, is that such a policy is likely to increase the pool of talent needed at the top of our political class. Few would argue that India’s politics suffers from a lack of credible leaders. To the extent that that is the result of limiting our talent pool to men only, this policy is likely to increase the number – if not the probability – of better leaders.

Is reservation really needed at the highest level?

Sandeep argues that reservations might be necessary at the lowest levels to “bring about social change”, but perhaps at the highest level “merit should prevail.” And he argues that there is a good reason for the lack of women at the top – their family duties.

This explaination is hardly satisfactory. Women may well have “family duties” but that is not why they do not reach the top. They fail to do so because they often have no opportunity to balance that “duty” with their professional aspirations. Where such opportunity is provided they manage to be both good mothers and good leaders. This is evident from a recent NYTimes article on India’s banking industry:

HSBC, JPMorgan Chase, Royal Bank of Scotland, UBS and Fidelity International in India are run by women. So is the country’s second-biggest bank, Icici Bank, and its third-largest, Axis Bank. Women head investment banking operations at Kotak Mahindra and JPMorgan Chase and the equities division of Icici. Half of the deputy governors at the Reserve Bank of India are women.

One in five of India’s big bank, insurance and money-management companies is headed by a woman, according to a study by the headhunting group EMA Partners. By contrast, there are no women leading major American or European banks, and no woman has ever run a Wall Street investment bank.

Are reservations going to make a difference?

Sandeep argues that a reservation policy brings with it the risk of extending that policy to perpetuity. Yes, that risk is certainly there – but do the immediate resulting benefits outweigh that possibility? And even if that risk remains, it is a risk derived not from the principle (of better representation) itself, but from how that principle is translated into policy. So, avoiding that risk is simply a matter of better policy design – for instance by having rotating quotas to avoid institutionalization of the positive discrimination.

Sandeep concludes his answer to this question by saying it is too early to tell. But is it?

Enough countries now have quotas of one form of another to provide indications of the impact – both on performance of politicians and on public attitudes to women at the top. Indeed, if the objective of this policy is to encourage greater female representation and change attitudes, India’s own experiment with reservation at the panchayat and sarpanch levels offers substantial hope for a positive outcome:

Here, the evidence from a study of councils in urban Mumbai points to a positive effect. Women who have gained political office are more likely to run and to win in elections where there are no quotas.

Both men and women report a higher assessment of women’s performance as leaders once they have experienced it. A study of the state of West Bengal suggests that bias against women leaders remains, but is less likely to be based on the assumption they will prove incompetent.

Do we need sub-quotas?

For one thing, sub-quotas institutionalize into perpetuity exactly the kind of positive discrimination that Sandeep cautions against earlier in his post. Moreover, he argues that “real empowerment” can only happen at the bottom, but we need proper representation “across communities” at the top.

It is true that a women’s reservation bill without sub-quotas will benefit certain sub-groups more than others. But is that reason enough for sub-quotas? Or, can that problem be overcome in other way?

Which groups benefit will depend very much on which seats are reserved. For instance, if a muslim-majority constituency is reserved for women it is extremely likely that most parties will field muslim candidates and the winner would be a muslim. Hence, again the problem of unequal representation against communities is one of design (i.e. which seats are reserved), rather than one of principle (i.e. having sub-quotas).

Finally, of course, we must also acknowledge that a single bill cannot solve all social injustices. It is useful, therefore, to remind us of why we should have a reservation policy. If the objective is to increase women’s representation, then this bill should address that problem, regardless of others that exist in society.

Conclusion

Women’s reservation has been a long-time coming. This bill may not be the best solution or only solution to empowering women. But let not the perfect be the enemy of the good.

Activists, generic producers and their allies will applaud trading future gains for access to cheaper drugs now. India’s government, however, should look at the nation’s longer-term interests. Apart from living up to the country’s international commitments, decisions like the High Court’s Nexavar ruling will deter investments in innovations that will help secure India’s future—doing more for the nation’s health and economy than copying can. After all, access to copies isn’t worth much when there’s nothing to copy.

Breaking down the argument

Mr. Cass’s conclusion is based on a series of arguments that must first be recognized and that go something like this - national health is heavily influenced by the availability of new drugs, drug innovation is driven by investments in R&D, R&D investment is tied to patent protection, and patent protection must be absolute for it to encourage R&D investment. Since the HC decision weakens (in Mr. Cass’s interpretation) patent protection, it results in reduced drug innovation and hence puts at risk the country’s state of healthcare.

There are four arguments in this causal chain and each of them is at least partly wrong. Let us take them in turn.

What was the HC decision about?

First, does the HC decision weaken patent protection? No. In fact, the case was not about patent protection and the court did not even consider whether Cipla had a patent for its generic copy of the drug. Rather, the question being addressed was whether a company needs to have a patent to receive marketing approval from the drug regulator (the DGCI). As BNET reported, “The high court’s ruling suggests that the DCGI should look only at safety and efficacy in granting approvals, and leave patents to the courts.”

Bayer, in its case, had tried to prevent the DGCI from granting a license to Cipla on the grounds that the drug may be “spurious.” But as the court pointed out not all drugs made in India are spurious nor does a patent guarantee safety. It is the DGCI’s job to ensure a drug is safe. Patents, however, are to be enforced in court.

Therefore, this decision does not weaken existing patent protections. What it does do is prevent multinationals from raising patent protections beyond what has been provided for in existing law – which according to the WTO is very much within the provisions of the TRIPS agreement.

Does patent protection increase R&D investments, which increases drug innovation?

The next two causal steps in Mr. Cass’s thinking are that patent protection would lead to increased R&D, which in turn would lead to increased innovation. Yet, this is clearly wrong. It has been known for quite some time that drug R&D investment by big pharma is driven not by patent protection, but by expected returns. While patent protection does help ensure expected returns, the primary variable is the size of the market. This was known as the 10/90 gap. Today it is visible in the lack of investment by big pharma into TB, malaria, Chagas’ disease and other tropical or developing world diseases. In other words, no amount of patent protection will get big pharma to invest in the diseases that inflict billions of India’s poor – simply because they do not constitute a viable market.

Nor does increased R&D investment and protection lead to drug innovation. A study from Thailand “found no increase in technology transfer and foreign investment as a result of increased patent protection.” On the contrary, increased patent protection can lead to perverse incentives that actually reduce drug innovation, encouraging companies to invest not in R&D but in protecting their patents.

What improves national health?

The last argument Mr. Cass makes is that national health is tied to drug innovation and availability. On this he is certainly partly right. National health will improve as drugs become available to tackle diseases prevalent in the local context. However, he overlooks two critical aspects of his argument.

First, healthcare delivery issues aside, drugs for many diseases will never be available in India till people are rich enough to afford them. And second, that drug availability is not simply a matter of innovation but of price. In other words, national health will improve not only if a drug has been created for a disease, but if it is also affordable for the local population.

How much patent protection?

It would appear each of the four assumptions Mr Cass makes are partly or entirely wrong, rendering the article invalid. Mr. Cass also ignores a growing body of evidence, including scientific studies, that suggest that the patent system is reducing innovation in general and drug R&D in particular.

In view of this, the HC judgement seems to be a good balancing act. It retains the letter of the law and does nothing to reduce patent protections. But it does clarify the division of labor between the courts, the DGCI, and the Intellectual Property Appellate Board. Most important, it prevents multinationals from trying to raise patent protections through judicial action, rather than by legislation.

Mr. Cass, who is Chairman of the Center for the Rule of Law, should have been elated at the judgement. Instead, he is content to condemn India’s poor to death for the benefit of a future not yet certain (and for Bayer’s profit). This may be an easy tradeoff to make ensconsed in Boston. But I would go with the judge’s interpretation of the case.

In order to help get some kind of bearing on the impact of microfinance, we present here a short literature review on how microfinance affects the lives of the poor. The selected papers are organized into three categories: the broader context, the impact of microcredit, and the impact of microsavings (surprisingly, there seems to have been more work done on savings than credit).

The broader context

Effects of Financial Access on Savings by Low-Income People
Fernando Aportelo, Bank of Mexico
December 1999

This paper assesses the impact of increasing financial access on low-income people savings. Effects on households’ saving rates and on different informal savings instruments are considered. The paper uses an exogenous expansion of a Mexican savings institute, targeted to low-income people, as a natural experiment and the 1992 and 1994 National Surveys of Income and Expenditures. Results show that the expansion increased the average saving rate of affected households by more than 3 to almost 5 percentage points. The effect was even higher for the poorest households in the sample: their saving rate increased by more than 7 percentage points in some cases. Furthermore, the expansion, in general, had no effect on high income households. In the case of informal savings instruments, evidence of crowding out of these instruments caused by the expansion is limited. Results do not rule out the possibility that a considerable fraction of the increase in households’ savings could have come from new savings.

Do Rural Banks Matter? Evidence From The Indian Social Banking Experiment
Robin Burguess & Rohini Pande; LSE, Yale University
August 2003

Lack of access to finance is often cited as a key reason why poor people remain poor. This paper uses data on the Indian rural branch expansion program to provide empirial evidence on this issue. Between 1977 and 1990, the Indian Central Bank mandated that a commercial bank can open a branch in a location with one or more bank branches only if it opens four in locations with no bank branches. We show that between 1977 and 1990 this rule caused banks to open relatively more rural branches in Indian states with lower initial financial development. The reverse is true outside this period. We exploit this fact to identify the impact of opening a rural bank on poverty and output. Our estimates suggest that the Indian rural branch expansion program significantly lowered rural poverty, and increased non-agricultural output.

The Economic Lives of the Poor
Abhijit V. Banerjee and Esther Duflo; Abdul Latif Jameel Poverty Action Lab, MIT
October 2006

This paper uses survey data from 13 countries to document the economic lives of the poor (those living on less than $2 dollar per day per capita at purchasing power parity ) or the extremely poor (those living on less than $1 dollar per day). We describe their patterns of consumption and income generation as well as their access to markets and publicly provided infrastructure. The paper concludes with a discussion of some apparent anomalous choices.

The Impact of Microcredit

Expanding Microenterprise Credit Access: Using Randomized Supply Decisions to Estimate the Impacts in Manila
Dean Karlan, Jonathan Zinman;
Yale University, Darthmouth College, IPA, Financial Access Initiative, MIT Jameel Poverty Action Lab
July 2009

Microcredit seeks to promote business growth and improve well-being by expanding access to credit. We use a field experiment and follow-up survey to measure impacts of a credit expansion for microentrepreneurs in Manila. The effects are diffuse, heterogeneous, and surprising. Although there is some evidence that profits increase, the  mechanism seems to be that businesses shrink by shedding unproductive workers. Overall, borrowing households substitute away from labor (in both family and outside businesses), and into education. We also find substitution away from formal insurance, along with increases in access to informal risksharing mechanisms. Our treatment effects are stronger for groups that are not typically targeted by microlenders: male and higher-income entrepreneurs. In all, our results suggest that microcredit works broadly through risk management and investment at the household level, rather than directly through the targeted businesses.

The miracle of microfinance? Evidence from a randomized evaluation
Abhijit Banerjee, Esther Duflo, Rachel Glennerster, Cynthia Kinnan; MIT Jameel Poverty Action Lab, Indian Centre for Micro Finance, Spandana
October 2009
Hyderabad, India

The researchers from the Abdul Latif Jameel Poverty Action Lab (J-PAL) at MIT and the Indian Centre for Micro Finance worked with Spandana to randomize the roll-out of its microcredit operations in Hyderabad, India’s fifth-largest city. Spandana chose 104 areas of the city to expand into eventually, rejecting some districts as having too many construction workers, who come and go and might take Spandana’s money with them. In 2006–-07 Spandana started lending in a randomly chosen 52 of the 104. Researchers followed up by surveying more than 6,000 households between August 2007 and April 2008, restricting their visits to families that seemed more likely to borrow: ones that had lived in the area at least three years and had at least one working-age woman. The surveyors made sure not to visit an area until Spandana had been there at least a year. They surveyed in “treatment” areas (ones where Spandana worked) and control ones (where it did not yet).

The impact of microsavings

The Impacts of Savings
Dean Karlan
Financial Access Initiative
January 2008

A summary of literature on the impact of microinsurance up to January 2008.

Female Empowerment: Impact of a Commitment Savings Product in the Philippines
Nava Ashraf, Dean Karlan, Wesley Yin; HBS and Jameel Poverty Action Lab, Yale, University of Chicago
March 2008

Female “empowerment” has increasingly become a policy goal, both as an end to itself and as a means to achieving other development goals. Microfinance in particular has often been argued, but not without controversy, to be a tool for empowering women. Here, using a randomized controlled trial, we examine whether access to and marketing of an individually-held commitment savings product leads to an increase in female decision-making power within the household. We find positive impacts, particularly for women who have below median decision-making power in the baseline, and we find this leads to a shift towards female-oriented durables goods purchased in the household.

Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya
Pascaline Dupas and Jonathan Robinson; UCLA, UCSC, NBER
March 2009

We conducted a field experiment to test whether savings constraints prevent the self-employed from increasing the size of their businesses. We opened interest-free savings accounts in a village bank in rural Kenya for a randomly selected sample of poor daily income earners. Despite the fact that the bank charged substantial withdrawal fees, take-up and usage was high among women and the savings accounts had substantial, positive impacts on their productive investment levels and expenditures. These results imply that a substantial fraction of daily income earners face important savings constraints and have a demand for formal saving devices (even for those that offer negative de facto interest rates).

Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines
Nava Ashraf, Dean Karlan, Wesley Yin
July 2005

We designed a commitment savings product for a Philippine bank and implemented it using a randomized control methodology. The savings product was intended for individuals who want to commit now to restrict access to their savings, and who were sophisticated enough to engage in such a mechanism. We conducted a baseline survey on 1777 existing or former clients of a bank. One month later, we offered the commitment product to a randomly chosen subset of 710 clients; 202 (28.4 percent) accepted the offer and opened the account. In the baseline survey, we asked hypothetical time discounting questions. Women who exhibited a lower discount rate for future relative to current tradeoffs, and hence potentially have a preference for commitment, were indeed significantly more likely to open the commitment savings account. After twelve months, average savings balances increased by 81 percentage points for those clients assigned to the treatment group relative to those assigned to the control group. We conclude that the savings response represents a lasting change in savings, and not merely a short-term response to a new product.

On the other hand, NYTimes microfinance evangelist Nicholas Kristof recently called for a “savings revolution”. To back up that call to arms, Rodman points to a great study on the impact of microsavings. That study, by Dupas and Robinson from rural Kenya, is an exciting read for it shows that despite negative rates of return on savings accounts, rural women both love savings accounts and seem to benefit from them:

We find that, about 6 months after having gained access to the account, the daily private expenditures of women sampled for the account were, on average, 37 to 44% higher than those of women in the comparison group. Their average daily food expenditures were 14-29% higher.

Why do savings accounts work so well? The study points out this may be because women without accounts “may be tempted to spend any cash that they hold” and because “it may be difficult to refuse requests for money.” In other words, savings accounts bring discipline to consumption patterns.

There is an interesting parallel with microcredit here. Recent studies of microfinance show that microcredit tends to smooth out consumption – allowing people to purchase consumer goods (TVs, refrigerators) that they would not be able to pay for up front. No doubt, microsavings can help individuals do the same – consumer more. However, there is a huge difference in the dynamics of how that consumption happens. In the case of microsavings, individuals are spending past income. In the case of microcredit, individuals are spending future income – money they neither have nor can risk loosing.

This also leads us to another benefit of microsavings – it acts as insurance in times of illnes. This is another “suggestive finding” of the Dupas and Robinson study:

We find that individuals are not fully protected from income risk. In particular, our logbooks show that, over the period of study, women in the control group were forced to draw down their working capital in response to health shocks. Women sampled for the savings account, however, were less likely to reduce their business investment levels when dealing with a health shock and were better able to smooth their labor supply over illness. In particular, women in the treatment group were more likely to be able to afford medical expenses for more serious illness episodes.

Finally, there is reason to believe that microsavings might be better business as well. For one, it requires no startup capital – which is provided by the clients themselves. Second, the cost of providing credit should actually be higher that for provision of savings – because accepting savings does not require doing a credit check. And finally, operational costs should also be similar or lower.

That logic brings us full circle. Microsavings do much the same for the poor as microcredit (i.e. smooth consumption and investment). And they do so at a lower cost. So why not replace microcredit with microsavings – which seems to be microcredit at a lower cost and with insurance built in.

For more, read Financial Inclusion in India and Do Rural Banks Matter.

The studies are not new but their coverage on the NYT is certainly refreshing. And looking at them together reveals a few interesting points.

First, it is clear that the accepted usage of the term “microfinance” has expanded substantially. First Macro Bank should not even be compared to Spandana for its target clientele is extremely different – existing entrepreneurs with above average national income. That FMB qualifies as a “microlender” seems to suggest merely that microfinance is now behaving as any business – going after the most profitable clients.

Second, it is clear that the impact of microfinance is a lot more fuzzy than development enthusiasts had us believe:

The effect on businesses is not dramatic but some clearly benefit. In the Philippines, male-owned businesses increase profits, although female-owned businesses do not. In India, borrowers who already own a business buy assets for their business. One borrower out of eight starts a business they would not have started otherwise. Others buy durables for their homes

However, there is no evidence that microcredit has any effect on health, education, or women’s empowerment, at least right now, eighteen months after they got the loans. On the other hand, there is also no evidence that people are behaving irresponsibly. Indeed in India we have evidence of people giving up some of the little daily pleasures of life (like tea, snacks, betel leaves and tobacco), to pay for bigger things that they could not previously afford (carts for their business, televisions for their homes).

So, microfinance has no clear impact on socio-economic indicators. And that is ok according to the authors.

Many seem to think that this is not enough. However, as we see it, microcredit seems to have delivered exactly what a successful new financial product is supposed deliver—allowing people to make large purchases that they would not have been able to otherwise. The fact that some people expected much more from it (and perhaps they are right, may be it will just take longer), is perhaps inevitable given how eager the world is to find that one magic bullet that would finally “solve” poverty. But to actually blame microcredit for not promoting the immunization of children is no different from blaming immunization campaigns for not generating new businesses.

In other words, the failure of microfinance to deliver a miraculous cure for poverty is a failure of its early proponents, not of the method itself. As a report pointed out in 2006, microfinance should be viewed as just another business. That perspective is very necessary if we are to get some realism into the debate on what works in microfinance and what does not.

Microfinance has succeeded in developing a relatively low-cost delivery model that can reach millions of underserved clients. That is its success. Its failure is that it has for too long believed in its own rhetoric of poverty alleviation. Now that we know that is not true, it is time to move beyond an obsession with providing credit, to other financial products such as savings and insurance that are likely to be much more effective at insulating the poor from life’s volatility.

Mull over that one for a moment. Mr. Blumenthal isn’t suing to right a wrong. He admits that he’s suing to coerce a change in policy no matter what the public’s elected representatives choose.

No doubt, there is truth to each of these criticisms of climate litigation. But they are all also irrelevant.

Bad for Business? So What?

Yes, climate litigation might be bad for some businesses – particularly the more polluting ones. But it would also be good for others, such as businesses involved in improving energy efficiency, renewable energy generation and the like. But regardless, what if such litigation was bad for business – should we then disallow it? The US Clean Air act, when it was enacted in 1970, was also no doubt seen as bad for business. But hardly anyone would argue that it should not have been enacted on those grounds. So, “bad for business” does not qualify as a potential shield against such litigation.

What is a Nuisance Law?

What about the suggestion that such litigation is a “nuisance”? But who gave the WSJ the right to label certain laws as a nuiscance? Certainly not the citizens of America. In fact, the very term “nuisance laws” is an oxymoron. Laws are not a nuisance – they exist to provide citizens protection of their rights. And due process exists to ensure objectivity in the deliverance of justice, as far as possible.

Take the case of the Tobacco industry, which was sued by hundreds of individuals from the 1950s to the 1990s. No doubt such litigation was both “bad for business” and a “nuisance” for some. But it led to the Tobacco Master Settlement, a USD 206 billion settlement, and dramatically changed views on smoking across the US and the world. Interestingly, no individual “nuisance” lawsuits ever won in court, a validation of the checks and balances of the American legal system and the high burden of proof required of plaintiffs.

Given this history climate skeptics and the WSJ – “if that’s not redundant” – should actually welcome such lawsuits. They would allow both sides of the story to be heard in open court and an objective assessment can then be made of the link between CO2 emissions, global warming, and its effects on cities or ecosystems. Indeed, the burden of proof would be on the plaintiffs from the “green lobby” – so if the skeptics really believe there is no global warming they should hardly worry about such lawsuits. Just as in the case of the tobacco industry, no definitive link may be found for some time – but it may still lead to a better understanding of the issue.

Regulation through Litigation?

Finally, what of the criticism that such litigation arrogates power from Congress to the courts? This is indeed correct. Theoretically, the legislature legislates, the executive “executes” and the judiciary serves as the last word on the matter.

However, this broad principle cannot be taken as absolute because there has always been an overlap of power across these arms of government. And that overlap exists because the legislature is not a perfect representation of the people’s will – insofar as it is not direct democracy and is often biased by private lobby groups. Thus, the potential arrogation of some power to the judiciary is understandable.

Furthermore, there is a long tradition of regulation through litigation including by the US government itself (United States vs. Microsoft Anti-trust lawsuit, or lead paint litigation). At issue here are not the outcomes of these  efforts but the principle of whether individuals and private groups can sue. If the government can, then why not individuals?

Finally, regulation through litigation, while having its own set of problems, also provides benefits. These are summarized well by Tim Lytton in the Texas Law Review:

(1) framing issues in terms of institutional failure and the need for institutional reform; (2) generating policy-relevant information; (3) placing issues on the agendas of policy-making institutions; (4) filling gaps in statutory or administrative regulatory schemes; (5) encouraging selfregulation; and (6) allowing for diverse regulatory approaches in different jurisdictions.

Conclusion

The WSJ editorial argues that litigation against high emitters of CO2 is both frivolous and sets and a dangerous precedent for an anarchic world where everyone can sue everyone. Yet, a long history of similar litigation suggests that both governments and individuals have used litigation in the past to raise issues that the legislature failed to do so. Society is no worse, and some may argue, is better for such litigation. Despite the costs involved, the principle should simply be to let the truth prevail – rather than avoid facing it because it is “bad for business.”

Forbes is all praise for this new design: “Take a look at the designs for what could someday be the world’s cheapest PC, and you may start to wish you were a third-grade child in Burundi.” This magical device is thinner than an iPhone, all-plastic, touchscreen, durable, and backlit. And all that for an amazing USD 75.

Forbes may be fooled, but the somewhat more tech-savvy folks at CNET remind us to take everything coming out of the OLPC Foundation with several grains of salt:

Remember, this is the organization that didn’t just scrap the XO-2, but couldn’t even tack a touch screen onto the current XO-1 laptop, which isn’t anywhere near the $100 that Negroponte once dreamed of.

Wired calls it “vaporvare”, pointing out that “CG mockups and philanthropic promises aren’t the same as real, shipping hardware.” Then again, perhaps it doesn’t have to be. As Mr. Negroponte himself says, “We don’t necessarily need to build it. We just need to threaten to build it.”

That must be code for, “You should know I cannot do this, and if you don’t then the joke is on you.” Or perhaps Mr. Negroponte believes he is the design center for the developing world’s computers. But at a sticker price of several billion dollars, that is a very expensive center indeed. He could get away with it once, but the real question is will media continue to pander to Mr. Negroponte’s self-gratifying dreams?

Finally, if there is any doubt left in your mind that the OLPC is a good idea, here’s another hint. Mr. Negroponte concludes by saying, “Sure, if I were a commercial entity coming to you for investment, and I’d made the projections I had in the past, you wouldn’t invest again, but we’re not a commercial operation. If we only achieve half of what we’re setting out to do, it could have very big consequences.”

To paraphrase: “I cannot do what I promise and at the price I promise. But that doesn’t matter, because we are not a commercial operation. And you being a government could not possibly be bothered by such things as expenses, forecasting, and budgets. Just throw your money my way.”

Any OLPC believers still out there, please cling to your faith.

Wayan Vota started an Educational Technology Debate on what the OLPC has achieved thus far with the assertion that the OLPC is “changing education, technology, even culture in ways beyond any one person’s understanding.”

Going by some of the comments that follow one could be excused for thinking that the OLPC is the best thing to happen to the world since sliced bread. The XO laptop will magically transform students into self-learners (”peers working collaboratively in teams”). A more balanced followup by Scott Kipp still proposes that thanks to the OLPC, “evaluations, discussions and policy assessments about whether or not to have computers in the classroom will very soon be entirely obsolete, if not already.”

Such overwhelming enthusiasm is surely out of place, and perhaps a bit of perspective is important.

For one lets be realistic that the OLPC is not “revolutionalizing” education. Yes, OLPC will soon have 1 million XO laptops in circulation. But compare that with 121 million children not in school, 668 million children that started primary school in 2007, or the 774 million illiterate adults and the OLPC does not seem that revolutionary. No doubt, computers will be important in the future to deliver education, but a lot of schools still struggle with having a blackboard or even a building. So lets not overstate either the scale or the impact of the OLPC.

Second, it is a stretch to say, as Wayan does, that the XO spawned the netbook. What the XO did do was spawn the Classmate PC. But the next step is a bit of a stretch.

Even if the XO did spawn the netbook, the lesson from this is two-fold. First, that non-profit initiatives such as the OLPC are particularly well-suited to creating new innovations, particularly for under-served populations.

Conversely, and this is the second lesson, the dissemination of commercially viable innovations is best left to the private sector. The XO laptop still costs upward of the original USD 100 target price. Meanwhile, the Amazon Kindle costs USD 259, the cheapest netbook now costs USD 98, and in developed countries netbooks are available for free with Internet/data plans. So the second lesson is that if you want cheap computers, don’t let a single institution – particularly a non-profit – build it as a monopoly.

A third lesson, to paraphrase Scott, is that teachers are part of the solution – not the problem. This is not wording that OLPC proponents would like because constructionsm sees teachers as a corrupting influence. Too much of the broader debate around the quality of education in developing countries also lays blame on teachers – without exploring the context in which they operate. Yet, is there an OLPC project that has substituted teachers with laptops? So, the second lesson is that if you want to achieve education for all, spend more on teachers and on computers. And if you must choose between the two, spend on the former.

Finally, it has also taught us that policymakers don’t always make the most judicious use of taxpayer money. The approximately USD 150 million spent on XO laptops, for instance, is the same annual amount needed to achieve 100% literacy in Brazil. Yes, the OLPC has certain other benefits, such as evaluating the impact, benefits and drawbacks of computers in the classroom. But at a potential price-tag of USD 66.8 billion for all the world’s primary school children, it would be a very expensive experiment indeed.

Such reasoning is far too simplistic for these individuals, and surprisingly echoes the words of Lord Griffiths, Vice Chairman of Goldman Sachs, who said that “we have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all”.

Becker and Posner’s posts skirt around two key issues.

First, Becker says that pay had nothing to do with the crisis:

I have not seen convincing evidence that either the level or structure of the pay of top financial executives were important causes of this worldwide financial crash.

On this he is most certainly right. Yet, while pay may not have been a direct cause of the crisis, it was in hindsight a predictive symptom of it. Fundamentally, the crisis was caused by a breakdown in ownership of responsibility. Financial executives, traders, and bankers bought and sold instruments on which they did not own the risk and thus did not feel compelled to view the transaction and the hefty profits that came with it with a healthy dose of skepticism.

No doubt other factors contributed to that tunnel vision – including a blind belief in the correctness of financial wizardry. But an incentive structure that rewarded short-term gain and encouraged overlooking fundamentals certainly did not help.

Posner, for his part, at least agrees to the principle of reforming compensation structures. Yet, he also concludes that “regulating financial compensation is a mistake”  because it cannot be done within the bounds of reason. Even if escrow and clawback clauses were added to executive compensation structures “that would be too small an expected penalty to dissuade him from making the deal. The penalty could not be made sufficiently heavy to disuade him without depriving him of most of his current income.”

Unfortunately for Posner the rebuttal to his “it cannot be done” argument is right there. Why not deprive the executive of most of his current income? The case for doing that is a natural extension of the principle of risk and benefit sharing.

Bonuses were designed to reward employees and allow them to participate in the potential of their work and the performance of their company. But over the years executives have come to view bonuses as part of their normal salary with poor performance to be penalized simply by a lower bonus. This gain-only structure is incomplete and not how it was meant to be. The logical thing would be to have a bonus for good years and a penalty for bad years. The possibility of loosing money from ones base salary should be part and parcel of every compensation structure.

There are two good reasons for such a structure.

First, it helps avoid risk where it is not necessary. As Posner mentioned, financial executives are overpaid given that their pay is based on “speculative profits that are not net additions to economic welfare, because they are offset by the losses of the speculators on the other side of successful speculators’ trades.” Raising the specter of loosing money will minimize speculation and force individuals to consider the potential consequences – positive and negative – of their actions.

Second, it is fair. If executives can gain from better performance they should also loose from poor performance. That is the principle that investors accept on the stock market and entrepreneurs accept when they setup companies. Why should executives and employees be treated any different when things go sour on their watch?