In 1955, Japan had been a sovereign state for three years and a democracy for nine. The nation had not yet escaped the wake of the Second World War, and its people had only just begun to pick up the pieces of their shattered lives.

That year, Japan’s two largest conservative parties, the Liberals, led by Yoshida Shigeru, and the Democrats, headed by Hatoyama Ichirō, joined to create the Liberal Democratic Party, or LDP, a political juggernaut that proceeded to dominate Japanese politics for the next fifty-four years. During the LDP’s half-century, Japan achieved the most triumphant economic recovery in human history, rising from the ashes to claim its position as the world’s second-largest economy.

That half-century ended last week. On August 30th, the LDP suffered its second electoral defeat in history, and most disastrous. The opposition Democratic Party of Japan (DPJ) headed by the grandson of Hatoyama Ichirō, Hatoyama Yukio, scored a landslide 308 of 480 seats in Japan’s more powerful lower house of parliament. The moment was an important watershed in the story of Japan’s democracy, but will not likely translate into large, concrete changes in the Japanese political system.

Five decades of effective single-party rule have gradually chipped away at the LDP brand. Whereas years ago a voter might have supported the party for its sound economic track record, that same voter today would likely be put off by the organization’s gradual descent into cronyism, corruption, and ineptitude. The LDP has historically maintained a strong “iron triangle” with bureaucracy and big business, a relationship that, in the past, was vital to the implementation of many successful growth policies. Yet, the cataclysmic implosion of Japan’s “bubble” economy smashed the party’s economic credentials, and recently the “triangle” has become the source of a growing number of scandals.

The party has proven unable to produce qualified leadership, and has fallen into a pattern of electing the incompetent sons of famous postwar politicians to the premiership. Japan has cycled through three such “succession” PMs in the last three years. Shinzo Abe, whose father and grandfather had both been prominent politicians, resigned after his administration lost 50,000 pension records and a cabinet member to suicide. Fukuda Yasuo, whose father held the premiership from 1976 to 1978, was dumped for conspiring to cover-up contaminated dumpling imports from China. And now Aso Tarō, the soon-to-be former LDP President and ex-prime minister, whose grandfather was Yoshida Shigeru of the old Liberal Party, father a close associate of Prime Minister Tanaka Kakuei, and father-in-law Prime Minister Suzuki Zenko, has been ousted for a poorly administered cash-handout policy, aura of aloof wealth and embarrassing inability to read complicated Japanese characters.

On August 30th voters decided they had had enough. The Japanese electorate spoke decisively in favor of regime change, and granted the opposition DPJ a significant majority in the lower house. The party now holds majority sway in both houses of parliament, enabling it to pass legislation with little obstruction.

The result is a slap against the Liberal Democrats, but not a sign of confidence in their rivals. Practically speaking, the DPJ has brought very little new to the table, and rather than promoting substantive debate in parliament, the party has appeared more interested in obstructing the LDP. Many Japanese fear that the DPJ lacks the tact and maturity to lead the nation, but having little in the way of viable options, have chosen to put aside this fear and trust them with the reins of government.

Exit poll data indicates that voters sought a change in leadership over a change in direction. After all, the DPJ is an LDP offshoot, and both parties are nearly identical in terms of worldview and political ideology. Those interviewed did not express disapproval of the general policy orientation of their government, but rather sincere distrust of the LDP’s ability to rule effectively. They hoped their votes would serve as reminders to the Liberal Democrats that their position is not assured, and that they must clean up their act if they hope to return to power again.

This is a moment of democratic revival in Japan. It is a reminder to Japanese voters that they are the masters of their own futures. Many who have never voted against the LDP in their lives are learning the problems that can arise when a political party is empowered for decades without being kept properly accountable. Even if the LDP were re-elected in the next election, they would be a better party for having lost, and the Japanese voter a better citizen for having voted them out. Due to the parties’ similarities, in practical terms the election of the DPJ will amount to little more than a change of face, but in the long run it could prove an important step to a more responsive Japanese democracy.

Much of the health care debate over the past couple of weeks has been fueled by the possibility that Obama would drop the so-called “public option,” and allow it to be replaced with a co-operative.  Like many aspects of the debate over health reform, the “public option” has been fiercely defended and fiercely criticized, but little understood.  This stems, I believe, from some fundamental misunderstandings about the nature of competition in the health sector.  These misunderstandings are sustained by simplistic arguments about “markets” and “competition” that have been adopted from normal markets for consumer goods.  But health care is not a consumer good, and it is characterized by “abnormal” markets.  Both advocates and opponents of a government role in health care reform need to take the abnormalities of the health sector seriously if reform is going to work.

Let’s start with the common assumption that most people seem to have about competition among insurance plans.  It is assumed, by advocates and critics alike, that a public option will increase cost pressures on private insurers.  Advocates like this idea because they believe that private insurers make big profits and provide shoddy service.  By putting cost pressure on them (in addition to certain regulations, like prohibiting discrimination against people with pre-existing conditions), these firms will be forced to reduce their overhead and improve their value for money to consumers.  Opponents dislike this idea because they think the competition will be “unfair,” since government can subsidize an unprofitable “public option” to keep prices lower to consumers, thus driving private plans out of business.  Everyone seems to agree, however, that the introduction of a public option and a health insurance exchange will increase competition and cost pressure on private plans.

This idea that competition will reduce costs seems so obvious, it is rare to hear anyone question it, and yet, there is no clear evidence to support it.  In the first place, we should ask what we can say about competition in general in the health sector.  For example, we have a system of private insurers competing right now (without a public plan), and they do not seem to be able to hold costs down.  Why should that be?  If competition lowers prices, why aren’t the existing health plans competing away profits and improving value for money for consumers?

There are several possible answers to this question.  One is that there is really not that much competition in the insurance sector, because, in any one town, an individual does not have very many choices.  In most states, one insurer dominates over 50 percent of the health care market.  It follows that the introduction of a public option will not just tighten competition in some markets, it will create competition for the first time.  To the extent this is true, we should recognize that the public option is actually an instrument of anti-trust within local markets.

But the structure of the American insurance market raises deeper issues.  Why is it that local markets are unable to support more private competition in the first place?  There are various theories about this problem.  A popular view among conservatives is that regulations at the state level prevent insurers from competing across states, which undermines competition.  There is probably some truth to the claim that such regulations dampen competition.  However, it should be noted that even with such restrictions: states are pretty large markets in which monopoly/oligopoly can be observed even within sub-state regions, and big insurers like Wellpoint and United Health Group do sell policies in different states.

Another part of the answer, which in my view is more important, has to do with the way that insurance companies compete.  Rather than compete on price, insurers have invested a great deal of money in “risk selection.”  Risk selection simply means that insurers work hard to avoiding issuing a policy to people they expect to have high health care needs.  If they fail to pre-screen people out, they can always deny coverage later for expensive treatments.

If one insurer successfully screens out people with pre-existing conditions, and those likely to incur high costs, this leaves an unattractive pool of residual clients for other insurers to serve.  The highest cost patients are left behind, and a second insurer can only make money on this population by charging very high premiums that will cover the costs of patients likely to be very ill.  But many people cannot afford such premiums, and, at any rate, high premium, high benefit plans tend to attract even sicker people, making the insurance unsustainable.  (Remember that insurance has to pool risks to stay in business.  Suppose it costs X/2 dollars on average to cover the costs of the population of uninsured.  Once the first insurer has skimmed the low risks off the population, the average cost of covering the remaining population is X.  Now suppose that a second insurer charges X.  At this price, the insurer will tend to attract patients who are certain that their own expenses will be more than X.  As a result, this insurer will end up covering a population whose average costs are actually higher than X, which is unsustainable.)

This is one reason the market for health care is not like the market for peanut butter.  It is also the reason why the proposed “health insurance exchange” is supposed to change the nature of competition in the insurance market.  To participate in the exchange, insurers will have to give up the practice of risk selection, and this should force them to take price and value for money more seriously.

Supposing that all insurance in America had to be sold through an exchange, and the rules forbid risk selection or differential premiums, then what would happen to the market?  This is the key question.  If insurance competition would “work” properly in this market, then there is no need for additional measures, such as a public plan.  If the insurance market would not work, then additional measures are warranted.

The creation of a regulated exchange could lead more insurers to jump in to provide coverage, to compete away the profits of monopolistic or oligopolistic firms that control large market shares in local markets.  In order for such firms to make money, they have to attract some of the healthier clients that have signed up with other firms, which they will do by lowering their premiums.  This could lead to healthy competition.

However, we have been assuming something else about the health care market which is not necessarily true.  When consumers choose a peanut butter, they can relatively easily try out a few different kinds of peanut butter and decide which one they like best, and how much they are willing to pay for that preference relative to other options.  This is rarely true in health care.  In the first place, the insurer is offering a bundle of services, not a single service.  It is harder for consumers to distinguish between complicated bundles than between individual services.  Second, since illness is, for most people, a rare event, it is unlikely that a patient has used many of the services offered by the insurance, or will know their likelihood of using them.  Third, average people tend not to know much about the relative value of different treatments or even what they mean until they do get sick and have to make decisions.  At that point, it is too late to be choosing an insurer.

The result of all of this is that patients tend to prefer insurance that covers desirable services, not all of which may contribute to their health.  Desirable services may include things like private hospital rooms, new technology, and the reputation of institutions associated with the insurer.  They also include reduced constraints on doctors to order tests or provide services, even if these tests and services are unnecessary.  (This problem is known as “induced demand,” since patients demand services because the doctor indicates that they should, rather than because of their own intrinsic demand.)

It is not unreasonable for consumers to want these things, just as it is not unreasonable for me to want to live in a mansion instead of a cottage.  But in an ideal market with consumer sovereignty and full information, these things would be balanced against actual information on consumer needs, health care quality, actual costs, and the true effectiveness of various covered interventions.  Actual health care markets tend to lack this balance.

Thus the question arises whether competition among private health insurers will actually reduce costs.  Many analysts would argue that such competition will not reduce costs, particularly if consumers are not forced to bear the bulk of these costs.  Under our current system, insurance transfers the bulk of the expense to a third party (the insurer), and patients are protected by subsidies that transfer much of the remaining expense to their employers or the taxpayer.  This is known as “moral hazard” by economists.

(Interestingly, neither the problem of moral hazard nor the problem of incomplete information has been resolved by the fact that much insurance is purchased by corporations for their employees.  Corporations receive tax benefits that reduce the cost to themselves of providing care, which in turn induces some moral hazard on their part.  And benefit managers at corporations also know little about what makes health care effective, which means they are not sovereign consumers either.)

Economists disagree about the relative importance of the lack of patient information/induced demand versus the moral hazard problem. (For differing points of view, see a debate about Singapore’s health system in this journal.)  But they would tend to agree that unless at least one of these problems are solved, there is no reason to expect that competition among insurers will necessarily lead to reduced costs.  Singapore’s own experience suggests that, even when moral hazard was reduced, there was a need for considerable additional government regulation to manage cost inflation. (Others have suggested that private competition cannot yield cost savings for another reason: providers are so powerful that they can dictate prices in local markets.)

Given the possibility that private competition will not yield reduced costs, it is perhaps not surprising that the Obama administration has introduced a complementary reform: the public option.  But we must now consider whether or not the public option really could control health care costs.  Should the introduction of a public competitor resolve the problems of information/induced demand or moral hazard?

There is no reason to expect the government to do anything about moral hazard.  If the government plan followed the design that is currently being discussed, it would function just like private insurance (i.e., be based on premiums), in which case it would have no advantage with respect to moral hazard.  If the plan functioned the way its critics intimate, meaning that it received subsidies from the government beyond those generated by premiums, it would introduce even more severe moral hazard.  So under no scenario does the public option improve the moral hazard problem.

What a non-profit, public insurance plan could do is to create a cheaper and more effective insurance plan by overcoming individuals’ information problems and trying to provide coverage that was more cost effective, while reducing excessive and unnecessary care that largely lines provider pockets.  Since the public option would not need to compete for profits like a for-profit insurer, it could take the high road and cover only really useful care, focusing on outcomes rather than flashy technology and private rooms that ultimately add a lot to costs, but little to health improvements.

But this immediately raises a question:  if the market is skewed in such a way that patients prefer flashy technology and private rooms, won’t they be willing to pay more for them? And since the moral hazard problem has not been solved, they only bear a small fraction of the costs of these extra perks.  And so, how exactly will the public option reduce costs?

The president, in defending the public option, has often used the example of the post office and FedEx to argue that the private sector will not have trouble competing with a public plan.  His point is well-taken, but a better example of the kind of market likely to develop in health care would be that of higher education.  In the United States, there are public universities offering in-state tuition at vastly reduced prices compared to private universities.  No one would argue that these private universities are unable to compete.  To the contrary, in spite of the big cost advantage of the public universities, they are the ones that struggle to compete for the best students.  The market for higher education has become segmented, with the best students and those with money largely focused on private, elite institutions, while less successful students or those without money rely on public universities.

Why shouldn’t health insurance turn out the same way?  If the public plan is perceived to be less desirable, because it provides less desirable non-medical services or less access to needless but attractive technology, people will tend to resort to it only when they cannot afford a “better” private plan.  This could result in a variety of outcomes.  One that already exists in the case of Medicare is that many people purchase complementary coverage, using Medicare for basic access, and a private Medigap plan for more extensive coverage.  Alternatively, the market could be completely segmented, with some people relying entirely on public, and others on private, insurance.  The result of this kind of segmentation would be that the public option’s primary purpose would be to provide insurance to everyone, but it would do little to control costs (except, perhaps, when compared to subsidizing everyone to buy costlier private insurance).

So if competition won’t reduce costs, what will?  At various times, President Obama has alluded to a need for changes in the delivery system.  This means changing how doctors are reimbursed, and how patients seek care.  It seems likely that such changes are necessary to reduce costs, because private competition, with or without a public option, is insufficient.  However, the issue of how to change the delivery system has not gotten much attention, in part because if we continue to rely on fragmented arrangements with providers, driven in part by our fragmented private insurance payment system, we cannot really do much to change the delivery system.  Thus it is that the principal tool for “bending the cost curve” has gotten little attention in the current debate about reform, while a beguilingly simple debate on competition among insurers has largely missed the boat.

An alternative way to control costs is for the public option to take over such a large share of the market that it can negotiate lower fees for everything from provider care to technology.  In other words, the principle force behind cost control would not be competition but monopsony power on the part of the government.  It is fear (and hope) for this outcome that has led some to view the public option as a gateway to “single payer.”  These analysts believe (rightly) that competition is not enough to bring down costs, and (more controversially) that the government will either desire or be forced to take over a larger share of the market to impose cost controls.

Is this what President Obama thinks? He has said that it is not.  And proposed legislation would not lead to this outcome on its own.  But the question of whether a public option is a gateway drug is ultimately one of trust.  Either you believe that the government is intent on moving to single payer through subversive means, or you don’t.  What can be said with some certainty is that there is no reason that a public option has to lead to single payer, because there are countries that have such an option and do not have single payer. The Netherlands, for example, provides public coverage to part of the population, while the wealthier third or so of the population pay for private coverage.

At the same time, the government could regulate the private insurance market in more effective ways, even without introducing a public option.  This approach would draw on the experience of other nations as well.  In addition to the policies under consideration already, such as forcing insurers to cover anyone and preventing them from charging a premium based on risk, it would be worth considering whether insurers should have to be non-profits.  Non-profits, which have exclusive rights to the private insurance market in Switzerland, may have reduced incentives to provide costly but ineffective care, particularly if they do not face competition from for-profits.  Converting our private market into a non-profit exchange would elicit a lot of opposition from for-profit insurers, but it would not be susceptible to claims about a government takeover and it could have an impact on the nature of health insurance competition.

You wouldn’t know it from the swastikas and the shouting, but there really are genuine issues at stake in the American health care debate. Because of all the noise, and because of fundamental misunderstandings on both sides, many of the most important issues have not even been discussed. Over the next few weeks, I will expose some misconceptions on both sides, and try to provide some direction for people who are genuinely interested in debating the merits of reform. I expect both liberals and conservatives to disagree with some of what I have to say. I suppose these days, that is about as much as one can hope for as proof of one’s credibility.

This week, because it is still hot, I take up the comparisons that have been made between any possible American health care reform involving increased government intervention, and the National Health Service in Britain.

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Misconception 1: The introduction of national health insurance (sometimes referred to as “single payer”), even if that were the true agenda of the Obama administration by introducing a “public option,” would make the American health care system similar to the British NHS.

This is dead wrong, and stems from a misunderstanding of the difference between a national health service, and national health insurance. More generally, the problem is a lack of understanding, or interest, in the basic structure of health systems.

The difference between the two types of health system are, at base, rather simple. We can think of the health system as divided into two major parts: financing and provision. Financing means who pays for health care and how. Provision means who delivers health care and how. These two parts may be either public or private. What does that mean? Private financing means that I, as a private citizen, go to the clinic and pay for my care. If I am somewhat averse to taking risks, I may buy an insurance policy so that I do not have to pay as much out of pocket when I go. Either way, as long as the insurance is sold to me by a private company, these two situations involve private finance. The alternative is public finance. Again, there are various options. Perhaps the simplest is that the government taxes me and then provides me with public insurance. Except for the fact that we are taxed first and provided care later, this is not a bad description of how Medicare works. It is publicly financed.

However, while Medicare is publicly financed, it is privately provided. This is an absolutely critical distinction. Provision may be, as finance is, either public or private. Private provision means that when you go to the doctor, you go to someone who is working in private practice, or for a private hospital, or at a private clinic. Private does not necessarily mean for-profit; the key is that the physician is not an employee of the government. In a publicly provided system, of course, the physician is an employee of the government. To repeat, Medicare is a public insurance plan which is publicly financed, but it provides access to private doctors, meaning it is privately provided.

If we were to interpret Obama’s “public option” as an attempt to dominate the insurance market, in spite of his claims to the contrary (an issue I will take up later), the result would still be a system that looked like national Medicare, in which private doctors were paid by public insurers. This is similar to how health care is provided in France, but it is not similar to how health care is provided in Britain. In Britain, there is a national health service, meaning that the financing and the provision are public, and doctors are employees of the state. This is pretty close to socialized medicine (almost: see future posts on the role of private finance even in government-run systems), but it is not plausible that anything in the current bills in front of Congress would lead to this result. In order for this to happen, the government would not only have to eat up all the private insurance plans, it would also have to take over all of the private clinics and hospitals in the United States. No one in the United States has ever really proposed this, and there is nothing in any existing bill that would make it possible.

Thus the view that health reform could turn the U.S. into Britain is completely false. The remaining question is whether the health reform could turn the United States into France, and what that would mean. I take this up in a future post. For now, I would just note that, by many international rankings, France has the best health care in the world. Arguably, this is precisely because of its mix of public financing with private provision. Many economists would argue that public finance with private provision gives us the best of both worlds: public finance means that the system is more equitable, since the poor are not excluded, while private provision means that the system is more efficient, since there is competition and choice. I will return to these issues in subsequent posts.

We have all heard about how the Community Reinvestment Act (CRA) is responsible for the surge in sub-prime lending, and therefore, extrapolating a touch, the financial crisis of 2008. The Act, originally passed in 1977, encourages banks to loan to lower-income and riskier borrowers who might not qualify for prime mortgage rates. The logic seems clear enough: if the government forced lenders to under-write loans for non-creditworthy borrowers, then the government must be to blame for pushing lenders into riskier mortgage products that had potentially high default rates.

While this makes some intuitive sense, it misunderstands the core drivers of the sub-prime mess. In the first place, it is worth asking how it could be that it took over 30 years for a legislative act to destroy the financial system. Surely the variable rate mortgages that drove many homeowners into default do not have ARMs that reach that far. If CRA is responsible for the mess, why did it take so long to wreak havoc? As we will see, it is not credible to blame CRA for what has happened to the housing market over the past three decades, because CRA has become less and less relevant over time.

These claims about CRA are based on two premises which turn out to be false. The first premise is that sub-prime mortgages were mostly the result of CRA-regulated banks. But most sub-prime mortgages were in fact originated by mortgage brokers that were not covered under CRA. It turns out that fewer and fewer loans since 1977 have actually been covered by CRA, because fewer and fewer of these loans originated with banks that are covered by the law (see this Harvard Joint Center for Housing Studies report). In fact, between 2004 and 2006, only 9 percent of sub-prime mortgages to risky borrowers were from institutions complying with CRA. That is, nine out of every ten sub-prime mortgages to risky borrowers had nothing to do with CRA. They were originated by independent mortgage brokers that were able to evade CRA regulations.

The second premise is that sub-prime mortgages were primarily given to non-creditworthy borrowers who could not afford prime rate mortgages. But a Wall Street Journal article from nearly two years ago has categorically demonstrated that this is not true: in 2005, 55 percent of sub-prime mortgages went to people who could have qualified at that time for a prime mortgage. Indeed, the percentage of sub-prime mortgages under-written for creditworthy borrowers steadily increased between 2000 and 2006, from 41 to 61 percent.

All of this suggests that if anything has changed since 1977 that might explain the financial crisis, it is not the increasing number of CRA-compliant sub-prime mortgages to risky borrowers. The opposite is true: fewer and fewer loans have been covered by CRA, and more and more sub-prime loans have gone to creditworthy borrowers.

What then is the driver of this increase in sub-prime and the consequent rise in defaults? It turns out that the rise in sub-prime mortgage lending was the result of the exorbitant fees that brokers and bankers could collect on securitizing such loans (through such incentives as “yield spread premiums”), as well as the potential gains from holding riskier loan portfolios that had allegedly been bundled in ways that made them virtually riskless for investors. As Michael Lewis has shown, securitizers could not originate new risky loans fast enough in order to feed the appetite of investors looking for mortgage-backed securities based on sub-prime.

It is for this reason that even after mortgages in America had been extended to every completely non-creditworthy household in America, lenders began pushing creditworthy households into sub-prime. But after every non-creditworthy and creditworthy household in America had been sub-primed and bundled off, there was still more demand. And that is how the financial system went beyond financing and began to engage in full-on, outright gambling. When there were no more mortgages to write (and in truth, even before this), the banks began creating and selling synthetic products, bundles of fictional loans that tracked actual loans and which were little more than expensive and risky side-bets by investors hungry for more risk (For more on this, see Gillian Tett’s new book, Fools’ Gold). Keep in mind that the packaging of synthetic products does not generate any productive investment in the economy, but is simply a way to speculate outright on the housing market. The creation of synthetic products based on bundled sub-prime loans that were pushed onto credit-worthy borrowers who could have qualified for prime loans is the single best piece of evidence that the irresponsible lending practices of major financial institutions were not caused by CRA, but by the search for speculative profit wherever it could be found.

The roots of the current crisis do go back several decades, but they are not to be found in CRA. A better place to look would be at the various crises that have occurred since the early 1980s. What these crises/scandals— savings and loan, Long-Term Capital Management, Enron—have in common is not sub-prime, but the increasingly irresponsible behavior of over-leveraged financial firms operating across a variety of markets, from junk bonds, to government bonds, to sub-prime. But more on that in a future posting.

Just as the swine flu episode has begun to wind down, Mexican elites have been seized by another contagion: bloodying each other on the front pages of the newspapers. Actually, the target of most of the attacks has been Carlos Salinas, Mexico’s president between 1988 and 1994, a man already widely loathed for presumed corruption during his tenure.

The new allegations against Salinas, both by his predecessor and a businessman who himself has been deeply implicated in corruption, are unlikely to have any impact on Salinas’s reputation, which is already miserable. Which raises the question: why now? Why is all of this dirty laundry being aired about a man who was president fifteen years ago right at this particular moment?

One possibility is that it is election season in Mexico has just kicked off, and the party that is ahead in the polls is the Salinas’s PRI, the state-party that ruled Mexico for over seven decades. The PAN (the ruling party) in particular has been working hard to revive the PRI’s authoritarian past in order to prime voters to refuse to pull the lever for the party. Because Mexican politics and political parties tend to be dominated by powerful personalities, the more Mexicans associate the new PRI with Salinas, the harder it is to distinguish the new and old PRI.

Whatever the reason for the sudden interest in Salinas, the scandals are indicative of how much the past is still present in Mexican politics. And while Salinas may or may not be all that relevant for Mexico’s future, the decadence of the party in power, the PAN, surely is a matter of concern. That decadence is nowhere more visible than in the ruling party’s tie-ups with the old corporatist power brokers of the past, those same brokers that helped the PRI to consolidate power over so many decades.

The most egregious example of this until recently had been the PAN’s shameless courting of Elba Esther Gordillo, the authoritarian head of the powerful teachers’ union in Mexico. Through strategic appointments of Gordillo’s inner circle to government posts, through policy initiatives, and through alliances with her party, New Alliance, the PAN has sought to incorporate the old corporatist architecture of the PRI into its own governing structure.

This year, the party has gone a step further in its embrace of the old power structure by offering a highly-ranked seat on its party list for the upcoming elections to the head of the second most powerful union in Mexico, the social security workers’ union (the SNTSS, which represents IMSS). The PAN literally stole Valdemar Gutiérrez Fragoso away from the PRI, which had given him a top-ranked seat only a week earlier.

It would be nice if the incorporation of a leading health official into the PAN meant that the health sector was going to suddenly get more attention. As recent reports triggered by the swine flu outbreak have demonstrated, the Mexican health system is severely fragmented, under-staffed, under-resourced and suffers from high absenteeism among physicians. Fixing it requires more money, but also new and improved labor relations and a new professionalism on the part of health workers.

Unfortunately, Mexican-style corporatism likely will have the opposite result: in exchange for electoral support, the administration will take a hands-off approach to the sector, allowing union bosses to treat it as their personal fiefdom. The result will be more corruption and less professionalism. If so, the past is not only present in Mexico, but future as well.

The news media failed to accurately and objectively evaluate the conflict between Russia and Georgia this past summer (2008), and have done little to ease lingering tension. To be certain, the story was not ‘missed,’ coverage of the assault littered news programs. However, half of the story has bee ‘neglected.’

This half has to do with Georgia’s responsibility for the conflict, and more specifically the responsibility of Georgian President Mikheil Saakashvili.

There is a disturbing tendency and near-enthusiasm to depict Russia as a marauder. This half of the story received a fair amount of coverage with John McCain claiming ‘today we are all Georgians,’ and Obama echoing these statements from his home in Hawaii. While the media was quick to jump on the familiar story of David (Georgia) versus Goliath (Russia), certain balancing facts were not given their fair shake.

Points for: Russia is a much larger country with an admittedly bad history of exerting force on its smaller, previously sovereign countries. Elements of the Russian offensive were perhaps too violent in their scale – such as refusing to leave Georgia after the conflict had been resolved, including the false-withdrawal of troops from Abkhazia. But these aspects were, for the most part, covered.

Points against: While countries like Ukraine have a distinct population, Georgia does have a significantly large population with claims to Russian citizenship (the controversy surrounding the Orange Revolution is a prime example of tension over sovereignty). The division of Ossetia into North and South is reflective of many years of political separatism. Granted, relations between the two halves have been largely peaceful, excluding Soviet pressure levied in the early 1920s and a more violent separatist attempt by South Ossetia around the dissolution of the U.S.S.R. However, the division is an artificial border in the sense that many people in Georgia are considered Russian citizens and hold Russian passports. The tension between Russian nationals and the admittedly brash Georgian government has been on going, well before the 2008 attacks. Georgian government has banned the broadcasting of Russian television stations and even resorted to violent restraint on the more vocal Russian and separatist communities living in Georgia. Saakashvili’s claim of Russian aggression neglects his own authorized attacks against Russian nationals. This oversight panders to the sympathies of the United States government, whom he expected would support Georgia militarily.

While Saakashvili was unable to win the support of the government, the American public was largely persuaded – helped by the media – that Georgia was the victim of Russian aggression.

This doesn’t mean that Russia was right, or even that it was not an aggressor. The need for Russian military – as opposed to diplomatic – action is debatable, and the delayed withdrawal of troops is a certain indicator of post-conflict aggression, but this is not the full story. The media largely neglected to cover the pre-conflict situation in Georgia and the legitimate history of violence between the Georgian government and a Russian-based division of its population.

Rather than provide this historical context, the media adopted a narrative: small nation menaced by large nation. But this is not the whole story. To be sure, Russia cannot be justly absolved from its actions – but to neglect the actions of Georgia is to neglect, at very least, one half of the story.

Author’s Comment: Several corrections have been made to this article to better match historical accuracy.

Last Friday, the David Rockefeller Center for Latin American Studies at Harvard sponsored a conference to reflect on the fifteen years that have transpired since the Zapatista uprising in Chiapas. The conference featured academics from both Mexico and the United States. It attempted to describe and debate the nature of political, social and economic change in Chiapas, as well as other poor states, in Mexico since 1994.

The conference was motivated by a central puzzle: since the Zapatista revolt, Chiapas, by most measures Mexico’s poorest state, has undergone massive political transformation, just as the broader country has. And yet the day-to-day lives of poor Chiapanecans seem to have changed relatively little by comparison. How is this possible?

It is worth rehearsing in detail some of the breathtaking political changes noted above. The Zapatista revolt itself enjoyed a certain political success, catching the authoritarian PRI regime off-balance, and leading to a substantial increase in federal financial flows to the state. The Zapatistas also achieved international fame and brought new NGO money and foreign aid to the region.

Indirectly, the rebellion achieved even more. Both Zapatista and non-Zapatista groups took advantage of the insecurity surrounding the revolt to press claims for land reform, resulting in a tremendous redistribution of land from large landholders to small peasants between 1994-1998. Indigenous peasants began to play a more active role in local and state politics as well, as various municipalities elected their first indigenous mayors, and CIOAC, a left-wing peasant group, dominated by indigenous Tojolabales, participated in the state government for the first time.

In 2000, the PRI was swept aside not only at the national level in Mexico, but also at the gubernatorial level in Chiapas. The relationship between the Zapatistas and electoral change has always been ambiguous, since the militants have generally distrusted electoral politics. But peasants who had supported the guerillas in the past opted to vote for change in 2000, and did play a role in the state’s democratic transition. Today, Chiapas is a highly competitive, multi-party state. In 2007 local elections, for example, 8 parties competed.

By any normal standards, this constitutes seismic political change. Yet the peasants of Chiapas today face bleak economic conditions. State GDP has largely been stagnant since the 1990s, and the poor states of Mexico’s South have, as a result, fallen further behind the rest of the country. The solution for most young, male peasants, is increasingly migration to the United States. Chiapas has moved from the bottom third to the top third of states receiving international remittances during this period.

So why haven’t all of these political changes made more of a difference to the lives of ordinary peasants? The conference participants suggested a few reasons. First, even the most ardent supporters of the Zapatistas admitted that the militants, who have largely given up violent struggle, have not replaced it with a realistic alternative tool of social change. Zapatistas today continue to experiment with the creation of “autonomous” zones of power in Chiapas, where they have set up parallel institutions of governance. Panelists disagreed about the efficacy of these institutions in political and juridical terms, but not in economic terms: the Zapatistas have not created a viable model of economic autonomy for poor peasants. At the same time, the turn inward, and away from the state, has rendered the Zapatistas less effective at reforming the Mexican state. While some panelists saw the Zapatista experiments as noble efforts to create alternative political structures that are more democratic than those of the wider society, others argued that the Zapatistas had missed an opportunity to build a broad movement to reform the state.

But of course, the failure of development in Chiapas goes far beyond the Zapatistas. The land reforms of the mid-1990s have not brought economic self-sufficiency, because the redistributed land is of low quality, and has been sub-divided into plots that are simply too small to yield enough for survival. All of this has happened at a time when the Mexican state has offered little in the way of subsidies to small farmers, and has also failed to offer an alternative development path that would move Chiapas up the value chain.

Electoral changes are also, to a certain degree, more apparent than real. A common theme to emerge from the panels was that, in spite of changes in political institutions, such as democratic elections, or decentralization, political practice at the state level in Mexico continues to be dominated by patron-client relationships and high discretion on the part of politicians. Thus, even though the PRI has been humbled, and new resources have been made available to Chiapas, and even though indigenous peasants have entered politics, dysfunctional institutions and corruption persist. The result is a failure to ameliorate basic inequalities. These findings are consistent across states as different as Oaxaca, Mexico and Chiapas.

The failures of the Zapatistas, the government, and other less radical opposition groups has resulted in an increasingly significant flow of migrants out of the state. Sadly, these flows, which are in part caused by the absence of a serious political project to redistribute resources and spur development, probably also contribute over time to the absence of such a project. After all, the support base for a pro-development coalition ought to be young peasants who see no future in the current economic model. But these are the same people who are not around to support such a coalition.

Is a different world possible? The panelists were not particularly optimistic. But, in my view, Mexico is slowly developing a civil society with a broader agenda of state transformation. This agenda should continue to focus on transparency and redistribution, as well as empowering the judiciary and other watch dogs to prevent abuse. Today, this coalition consists of a few small but dynamic groups, like FUNDAR. Over time, it is to be hoped, there will be more groups, particularly at the sub-national level. The road is long, but the journey has begun.

By Guest Authors Michael Barton and Gabriel C. Lajeunesse

General David Petraeus testified last week that militant extremists in Pakistan could “literally take down their state” if left unchallenged. Meanwhile, suicide bombers continued to strike unabated in Afghanistan, even as the international community committed their support to the fledgling democracy at the Hague. The President now has a new strategy for Afghanistan and Pakistan. It wisely marshals resources by centering on a core goal: fighting, dismantling, and defeating al-Qa’ida and their supporters. This strategy also hedges against European NATO members’ reticence to offer additional combat forces by providing them the “out” of instead providing trainers, funding, and other military support.

The real challenge to this strategy will be in the execution. This battle, much like the battle for Baghdad during the Iraq surge, will be won or lost by Commanders on the ground, soldiers in the field, and their civilian counterparts. In the years since 9/11 the U.S. has demonstrated the capability and willingness kill or capture senior al-Qa’ida operatives in Pakistan. The network of low-level facilitators, however, is an order of a different magnitude, with its geographic area and scope too vast for a conventional mission with only 21,000 additional troops.

With these additional troops, Generals David Petraeus and David McKiernan can focus on identifying and destroying the al-Qa’ida facilitation networks near the Afghanistan-Pakistan border. These networks remain the backbone of al-Qa’ida, moving people, passing information, and acquiring equipment to enable the targeting of civilians and American, coalition, and Afghanistan troops – as well as U.S. supply routes. These networks also use criminal and narcotrafficking enterprises as force multipliers in their efforts to co-mingle with civilians, which remains one of the single most important elements of any successful terrorist organization. A significant amount of intelligence is needed to effectively dismantle such an extensive network, and it will only come as the Afghans begin to trust that the security gains are not fleeting. To be successful, this requires a targeted and fully resourced counterinsurgency effort.

After years in Iraq our Soldiers and Marines are seasoned in counterinsurgency and the community policing that it entails. Living among the civilians, protecting them, and demonstrating our commitment to them as individuals and improve the quality of their lives. Successes like those seen in Brigadier General Shawn MacFarland’s Anbar, or Colonel David Sutherland’s rough and tumble Diyala, will only be seen if the new U.S. forces and partnered Afghan forces are concentrated along the key pipelines that al-Qa’ida depends upon for its survival. Once forces in Iraq moved from secure forward operating bases to exposed combat outposts in the heart of troubled areas, security there improved. One year after applying these techniques in the Iraq surge, violence had decreased 70%. Weapons cache seizures – a good indicator of a cooperating population – increased 60%. The Pakistani’s likewise must learn to adopt these approaches and training missions if they are to build a capable counterinsurgency force. Without such capability, Pakistani leadership and civilians will continue to be picked off, and the Pakistani Army’s status of guarantor of national security will be even further eroded.

The Afghanistan-Pakistan counterinsurgency approach is a means to an end. The goal has never been to establish a Switzerland in Central Asia, rather, it has been to deny al-Qa’ida a base from which it can freely plan and execute terrorist attacks. Applying these additional forces to attack al-Qa’ida’s vulnerability will keep them running, hiding, and on the defensive until the backbone of this network is broken for good.

Mr. Barton served at the White House from 2003-2006; Mr. Lajeunesse is an associate at Georgetown’s Institute for the Study of Diplomacy and is a former Air Force Special Agent.

Paul Klebnikov   was the American-born editor of the Russian edition of Forbes Magazine. Klebnikov made his reputation as a investigative journalist looking into the business dealings of high-level Russian politicians and aspiring oligarchs. On July 9, 2004 Klebnikov was gunned down on the streets of Moscow in apparent retaliation for his professional activities. To this date the case is still open and no one has been successfully prosecuted for the murder.

To commemorate his memory, friends and family established the Paul Klebnikov Fund  which is designed to promote civil society and rule-of -law in Russia and to reward outstanding Russian jurists or journalists who have made lasting contributions towards this cause.

The 2009 winner is the journalist Leonid Nikitinsky who writes for the Novaya Gazeta.  He was at U. Mass Boston yesterday and this is what he had to say:

According to Nikitinsky today’s Russia is not abiding by the rule-of-law but rather by the rule of what he calls:  the ‘ments’…A ‘ment’ (derived from Russian prison slang) can be anyone who has any sort of state authority, anyone who wears ‘leather straps’ as Nikitinsky stated. They can either grease the wheels for you or stop you in your tracks, but what they all have in common is a license to steal.

Acting according to ‘no ideology or vision or responsibility’ these thousands of bureaucratic ‘locusts’ as Nikitinsky characterizes them, perform only one visible social function: the transfer of assets from ordinary Russians to themselves through endless bribery and extortion. They manipulate arrests, prosecutions and trials. They intimidate juries, blackmail witnesses and even make inconvenient enemies disappear. They will stop only when you write out the check and maybe not even then if they detect that you have more to give.

Despite Putin’s so-called ‘vertical power structure,’ the sheer number of ‘ments’ running rampant throughout the national system makes control virtually impossible. It merely hides ‘a spreading anarchy’ which, accoding to Nikitinsky, the Kremlin is very concerned about.

 In the written comments accompanying his talk he states:

By crude analogy the ‘ments’ dictatorship is not unrelated to Somalia under warlords, or parts of Pakistan and Afghanistan run by armed militias of local tribal chieftains. “Dictatorship of ‘ments’” is driving Russia to anarchy. Unless the process of ‘mentization’ is reversed Russia could end up the world’s largest failed state. The situation is dire.

Indeed.

Last week, Mexico’s Supreme Court received a preliminary report by a special investigative arm of the tribunal that had been charged with looking into human rights violations in Oaxaca. The special investigation had been requested by the Mexican legislature after the violent conflict between the southern state’s governor and civil society in 2006. To recall, in 2006, the state’s teachers’ union joined forces with a coalition of civil activists under the umbrella of the APPO (Popular Assembly of the People of Oaxaca) to call for the resignation of the governor. The governor responded with repression, and Oaxaca came to a standstill as the governor and APPO faced off in the streets. After nearly half a year, the federal police arrived to crush the protests and restore order.

Activists have always claimed that the authorities committed grave human rights violations, including arbitrary arrests and murder. The report, over 39 volumes and more than 6500 pages, substantiates at least some of these claims. It now falls to the Court to decide how to proceed, including whether particular individuals should be charged with criminal conduct.

This is the second major investigative report filed by the Court in recent weeks. Less than a month ago, the Court also released its findings from another 2006 debacle, the Atenco case. This case, to recall, involved a conflict over the use of public space in the state of Mexico, specifically a public square where informal vendors sold flowers in San Salvador Atenco. Disputes between the police and local community led to the violent removal of vendors and accusations against the police of rape and assault. The Court’s report corroborates many of these accusations as well.

On Sunday, El Universal reported that there is a new proposal in the Mexican Congress to raise human rights to the level of constitutional rights in Mexico. Language in the constitution would be altered to reference international human rights standards, rather than the antiquated view of rights as a grant from the state. The reform would also put more emphasis on educating students about human rights in school.

All of this attention to human rights is surely to be welcomed, but the fundamental problem in Mexico is not a lack of knowledge about human rights, nor the fact that human rights do not have legal protection. The fundamental problem is that these rights are not enforced and that people who violate them do so with impunity. Mexico’s National Commission on Human Rights (CNDH) has, for example, done an exemplary job of identifying human rights violations in Mexico since its creation, but has few mechanisms for enforcing redress, and has been criticized for failing to use even those that it does have, such as ongoing monitoring and public shaming of officials. The country’s auditor, which just released its report of expenditure in 2007, while also an exemplary investigator of government waste and abuse, is less able to force public officials to respond to its allegations or reform their practices.

One human rights-related reform in Mexico that might make a difference would be to empower the CNDH to sanction violators who do not reform on their own. Mexico has come a long way in terms of its transparency, but it has done less well at creating institutions that can use this information to actually change the way society works. Mexicans know much more about how money is misused, rights violated, and the economy held hostage by monopolists than ever before. But the impunity continues. The right to have rights doesn’t mean putting them in the constitution, a notorious burial ground for unenforceable claims. It means instead beefing up enforcement. That is the proper focus of reform.