Chapter 8

resold imported goods; e. Import restrictions on legitimately- marked trademarked goods; f. Unjustifiably - whether partially or completely - refusing to deal on an enterprise's customary commercial terms, making the supply of goods or services dependent on restrictions on the distribution or manufacturer of other goods, imposing restrictions on the resale or exportation of the same or other goods, and purchase "tie-ins".

C. ANTI - COMPETITIVE STRATEGIES Any Competition Law in Macedonia should, in my view, excplicitly include strict prohibitions of the following practices (further details can be found in Porter's book - "Competitive Strategy").

These practices characterize the Macedonian market.

They influence the Macedonian economy by discouraging foreign investors, encouraging inefficiencies and mismanagement, sustaining artificially high prices, misallocating very scarce resources, increasing unemployment, fostering corrupt and criminal practices and, in general, preventing the growth that Macedonia could have attained.

Strategies for Monopolization Exclude competitors from distribution channels. - This is common practice in many countries. Open threats are made by the manufacturers of popular products: "If you distribute my competitor's products - you cannot distribute mine. So, choose." Naturally, retail outlets, dealers and distributors will always prefer the popular product to the new. This practice not only blocks competition - but also innovation, trade and choice or variety.

Buy up competitors and potential competitors. - There is nothing wrong with that. Under certain circumstances, this is even desirable. Think about the Banking System: it is always better to have fewer banks with bigger capital than many small banks with capital inadequacy (remember the TAT affair). So, consolidation is sometimes welcome, especially where scale represents viability and a higher degree of consumer protection. The line is thin and is composed of both quantitative and qualitative criteria.

One way to measure the desirability of such mergers and acquisitions (M&A) is the level of market concentration following the M&A. Is a new monopoly created? Will the new entity be able to set prices unperturbed? stamp out its other competitors? If so, it is not desirable and should be prevented.

Every merger in the USA must be approved by the antitrust authorities. When multinationals merge, they must get the approval of all the competition authorities in all the territories in which they operate. The purchase of "Intuit" by "Microsoft" was prevented by the antitrust department (the "Trust-busters"). A host of airlines was conducting a drawn out battle with competition authorities in the EU, UK and the USA lately.

Use predatory [below-cost] pricing (also known as dumping) to eliminate competitors. - This tactic is mostly used by manufacturers in developing or emerging economies and in Japan. It consists of "pricing the competition out of the markets". The predator sells his products at a price which is lower even than the costs of production. The result is that he swamps the market, driving out all other competitors. Once he is left alone - he raises his prices back to normal and, often, above normal.

The dumper loses money in the dumping operation and compensates for these losses by charging inflated prices after having the competition eliminated.

Raise scale-economy barriers. - Take unfair advantage of size and the resulting scale economies to force conditions upon the competition or upon the distribution channels. In many countries Big Industry lobbies for a legislation which will fit its purposes and exclude its (smaller) competitors.

Increase "market power (share) and hence profit potential".

Study the industry's "potential" structure and ways it can be made less competitive. - Even thinking about sin or planning it should be prohibited. Many industries have "think tanks" and experts whose sole function is to show the firm the way to minimize competition and to increase its market shares. Admittedly, the line is very thin: when does a Marketing Plan become criminal? Arrange for a "rise in entry barriers to block later entrants" and "inflict losses on the entrant". - This could be done by imposing bureaucratic obstacles (of licencing, permits and taxation), scale hindrances (no possibility to distribute small quantities), "old boy networks" which share political clout and research and development, using intellectual property right to block new entrants and other methods too numerous to recount.

An effective law should block any action which prevents new entry to a market.

Buy up firms in other industries "as a base from which to change industry structures" there. - This is a way of securing exclusive sources of supply of raw materials, services and complementing products. If a company owns its suppliers and they are single or almost single sources of supply - in effect it has monopolized the market. If a software company owns another software company with a product which can be incorporated in its own products - and the two have substantial market shares in their markets - then their dominant positions will reinforce each other's. "Find ways to encourage particular competitors out of the industry". - If you can't intimidate your competitors you might wish to "make them an offer that they cannot refuse". One way is to buy them, to bribe the key personnel, to offer tempting opportunities in other markets, to swap markets (I will give you my market share in a market which I do not really care about and you will give me your market share in a market in which we are competitors). Other ways are to give the competitors assets, distribution channels and so on providing that they collude in a cartel. "Send signals to encourage competition to exit" the industry. - Such signals could be threats, promises, policy measures, attacks on the integrity and quality of the competitor, announcement that the company has set a certain market share as its goal (and will, therefore, not tolerate anyone trying to prevent it from attaining this market share) and any action which directly or indirectly intimidates or convinces competitors to leave the industry.

Such an action need not be positive - it can be negative, need not be done by the company - can be done by its political proxies, need not be planned - could be accidental. The results are what matters.

Macedonia's Competition Law should outlaw the following, as well: 'Intimidate' Competitors Raise "mobility" barriers to keep competitors in the least-profitable segments of the industry. - This is a tactic which preserves the appearance of competition while subverting it. Certain segments, usually less profitable or too small to be of interest, or with dim growth prospects, or which are likely to be opened to fierce domestic and foreign competition are left to the competition. The more lucrative parts of the markets are zealously guarded by the company. Through legislation, policy measures, withholding of technology and know-how - the firm prevents its competitors from crossing the river into its protected turf.

Let little firms "develop" an industry and then come in and take it over. - This is precisely what Netscape is saying that Microsoft is doing to it. Netscape developed the now lucrative Browser Application market. Microsoft was wrong in discarding the Internet as a fad. When it was found to be wrong - Microsoft reversed its position and came up with its own (then, technologically inferior) browser (the Internet Explorer). It offered it free (sound suspiciously like dumping) to buyers of its operating system, "Windows". Inevitably it captured more than 30% of the market, crowding out Netscape. It is the view of the antitrust authorities in the USA that Microsoft utilized its dominant position in one market (that of the Operating Systems) to annihilate a competitor in another (that of the browsers).

Engage in "promotional warfare" by "attacking shares of others". - This is when the gist of a marketing, lobbying, or advertising campaign is to capture the market share of the competition. Direct attack is then made on the competition just in order to abolish it. To sell more in order to maximize profits, is allowed and meritorious - to sell more in order to eliminate the competition is wrong and should be disallowed.

Use price retaliation to "discipline" competitors. - Through dumping or even unreasonable and excessive discounting. This could be achieved not only through the price itself. An exceedingly long credit term offered to a distributor or to a buyer is a way of reducing the price.

The same applies to sales, promotions, vouchers, gifts.

They are all ways to reduce the effective price. The customer calculates the money value of these benefits and deducts them from the price.

Establish a "pattern" of severe retaliation against challengers to "communicate commitment" to resist efforts to win market share. - Again, this retaliation can take a myriad of forms: malicious advertising, a media campaign, adverse legislation, blocking distribution channels, staging a hostile bid in the stock exchange just in order to disrupt the proper and orderly management of the competitor. Anything which derails the competitor whenever he makes a headway, gains a larger market share, launches a new product - can be construed as a "pattern of retaliation".

Maintain excess capacity to be used for "fighting" purposes to discipline ambitious rivals. - Such excess capacity could belong to the offending firm or - through cartel or other arrangements - to a group of offending firms.

Publicize one's "commitment to resist entry" into the market.

Publicize the fact that one has a "monitoring system" to detect any aggressive acts of competitors.

Announce in advance "market share targets" to intimidate competitors into yielding their market share.

Proliferate Brand Names Contract with customers to "meet or match all price cuts (offered by the competition)" thus denying rivals any hope of growth through price competition.

Secure a big enough market share to "corner" the "learning curve," thus denying rivals an opportunity to become efficient. - Efficiency is gained by an increase in market share. Such an increase leads to new demands imposed by the market, to modernization, innovation, the introduction of new management techniques (example: Just In Time inventory management), joint ventures, training of personnel, technology transfers, development of proprietary intellectual property and so on. Deprived of a growing market share - the competitor will not feel pressurized to learn and to better itself. In due time, it will dwindle and die.

Acquire a wall of "defensive" patents to deny competitors access to the latest technology. "Harvest" market position in a no-growth industry by raising prices, lowering quality, and stopping all investment and advertising in it.

Create or encourage capital scarcity. - By colluding with sources of financing (e.g., regional, national, or investment banks), by absorbing any capital offered by the State, by the capital markets, through the banks, by spreading malicious news which serve to lower the credit- worthiness of the competition, by legislating special tax and financing loopholes and so on.

Introduce high advertising-intensity. - This is very difficult to measure. There could be no objective criteria which will not go against the grain of the fundamental right to freedom of expression. However, truth in advertising should be strictly imposed. Practices such as dragging a competitor through the mud or derogatorily referring to its products or services in advertising campaigns should be banned and the ban should be enforced.

Proliferate "brand names" to make it too expensive for small firms to grow. - By creating and maintaining a host of absolutely unnecessary brandnames, the competition's brandnames are crowded out. Again, this cannot be legislated against. A firm has the right to create and maintain as many brandnames as it wishes. The market will exact a price and thus punish such a company because, ultimately, its own brandname will suffer from the proliferation.

Get a "corner" (control, manipulate and regulate) on raw materials, government licenses, contracts, subsidies, and patents (and, of course, prevent the competition from having access to them).

Build up "political capital" with government bodies; overseas, get "protection" from "the host government". 'Vertical' Barriers Practice a "preemptive strategy" by capturing all capacity expansion in the industry (simply buying it, leasing it or taking over the companies that own or develop it).

This serves to "deny competitors enough residual demand". Residual demand, as we previously explained, causes firms to be efficient. Once efficient, they develop enough power to "credibly retaliate" and thereby "enforce an orderly expansion process" to prevent overcapacity Create "switching" costs. - Through legislation, bureaucracy, control of the media, cornering advertising space in the media, controlling infrastructure, owning intellectual property, owning, controlling or intimidating distribution channels and suppliers and so on.

Impose vertical "price squeezes". - By owning, controlling, colluding with, or intimidating suppliers and distributors, marketing channels and wholesale and retail outlets into not collaborating with the competition.

Practice vertical integration (buying suppliers and distribution and marketing channels).

This has the following effects: The firm gains a "tap (access) into technology" and marketing information in an adjacent industry. It defends itself against a supplier's too-high or even realistic prices.

It defends itself against foreclosure, bankruptcy and restructuring or reorganization. Owning suppliers means that the supplies do not cease even when payment is not affected, for instance.

It "protects proprietary information from suppliers" - otherwise the firm might have to give outsiders access to its technology, processes, formulas and other intellectual property.

It raises entry and mobility barriers against competitors.

This is why the State should legislate and act against any purchase, or other types of control of suppliers and marketing channels which service competitors and thus enhance competition.

It serves to "prove that a threat of full integration is credible" and thus intimidate competitors.

Finally, it gets "detailed cost information" in an adjacent industry (but doesn't integrate it into a "highly competitive industry"). "Capture distribution outlets" by vertical integration to "increase barriers". 'Consolidate' the Industry Send "signals" to threaten, bluff, preempt, or collude with competitors.

Use a "fighting brand" (a low-price brand used only for price-cutting).

Use "cross parry" (retaliate in another part of a competitor's market).

Harass competitors with antitrust suits and other litigious techniques.

Use "brute force" ("massed resources" applied "with finesse") to attack competitors or use "focal points" of pressure to collude with competitors on price. "Load up customers" at cut-rate prices to "deny new entrants a base" and force them to "withdraw" from market.

Practice "buyer selection," focusing on those that are the most "vulnerable" (easiest to overcharge) and discriminating against and for certain types of consumers. "Consolidate" the industry so as to "overcome industry fragmentation".

This arguments is highly successful with US federal courts in the last decade. There is an intuitive feeling that few is better and that a consolidated industry is bound to be more efficient, better able to compete and to survive and, ultimately, better positioned to lower prices, to conduct costly research and development and to increase quality. In the words of Porter: "(The) pay-off to consolidating a fragmented industry can be high because... small and weak competitors offer little threat of retaliation".

Time one's own capacity additions; never sell old capacity "to anyone who will use it in the same industry" and buy out "and retire competitors' capacity".

A Note on the Spiteful Application of Competition Laws In many developing countries and countries in transition from Communism to capitalism, competition laws are used to reward cronies or to damage opponents. The discriminatory and partial application of such laws and regulations sustains networks of patronage and cements political-economic alliances.

This abuse of the rule of Law and the regulatory regime is further compounded by the seething pathological envy that is typical of erstwhile egalitarian societies now exposed to growing income inequalities. The mob, business rivals, political parties, and the populace at large leverage competition laws to tear down businesses and humiliate entrepreneurs whose success grates on their nerves and provokes their unbridled jealousy.

XXX. The Benefits of Oligopolies

The Wall Street Journal has recently published an elegiac list: "Twenty years ago, cable television was dominated by a patchwork of thousands of tiny, family-operated companies. Today, a pending deal would leave three companies in control of nearly two-thirds of the market.

In 1990, three big publishers of college textbooks accounted for 35% of industry sales. Today they have 62% ... Five titans dominate the (defense) industry, and one of them, Northrop Grumman ... made a surprise (successful) $5.9 billion bid for (another) TRW ... In 1996, when Congress deregulated telecommunications, there were eight Baby Bells. Today there are four, and dozens of small rivals are dead. In 1999, more than 10 significant firms offered help-wanted Web sites. Today, three firms dominate".

Mergers, business failures, deregulation, globalization, technology, dwindling and more cautious venture capital, avaricious managers and investors out to increase share prices through a spree of often ill-thought acquisitions - all lead inexorably to the congealing of industries into a few suppliers. Such market formations are known as oligopolies. Oligopolies encourage customers to collaborate in oligopsonies and these, in turn, foster further consolidation among suppliers, service providers, and manufacturers.

Market purists consider oligopolies - not to mention cartels - to be as villainous as monopolies. Oligopolies, they intone, restrict competition unfairly, retard innovation, charge rent and price their products higher than they could have in a perfect competition free market with multiple participants. Worse still, oligopolies are going global.

But how does one determine market concentration to start with? The Herfindahl-Hirschmann index squares the market shares of firms in the industry and adds up the total. But the number of firms in a market does not necessarily impart how low - or high - are barriers to entry. These are determined by the structure of the market, legal and bureaucratic hurdles, the existence, or lack thereof of functioning institutions, and by the possibility to turn an excess profit.

The index suffers from other shortcomings. Often the market is difficult to define. Mergers do not always drive prices higher. University of Chicago economists studying Industrial Organization - the branch of economics that deals with competition - have long advocated a shift of emphasis from market share to - usually temporary - market power. Influential antitrust thinkers, such as Robert Bork, recommended to revise the law to focus solely on consumer welfare.

These - and other insights - were incorporated in a theory of market contestability. Contrary to classical economic thinking, monopolies and oligopolies rarely raise prices for fear of attracting new competitors, went the new school. This is especially true in a "contestable" market - where entry is easy and cheap.

An Oligopolistic firm also fears the price-cutting reaction of its rivals if it reduces prices, goes the Hall, Hitch, and Sweezy theory of the Kinked Demand Curve. If it were to raise prices, its rivals may not follow suit, thus undermining its market share. Stackleberg's amendments to Cournot's Competition model, on the other hand, demonstrate the advantages to a price setter of being a first mover.

In "Economic assessment of oligopolies under the Community Merger Control Regulation, in European Competition law Review (Vol 4, Issue 3), Juan Briones Alonso writes: "At first sight, it seems that ... oligopolists will sooner or later find a way of avoiding competition among themselves, since they are aware that their overall profits are maximized with this strategy. However, the question is much more complex. First of all, collusion without explicit agreements is not easy to achieve. Each supplier might have different views on the level of prices which the demand would sustain, or might have different price preferences according to its cost conditions and market share. A company might think it has certain advantages which its competitors do not have, and would perhaps perceive a conflict between maximising its own profits and maximizing industry profits.

Moreover, if collusive strategies are implemented, and oligopolists manage to raise prices significantly above their competitive level, each oligopolist will be confronted with a conflict between sticking to the tacitly agreed behaviour and increasing its individual profits by 'cheating' on its competitors. Therefore, the question of mutual monitoring and control is a key issue in collusive oligopolies".

Monopolies and oligopolies, went the contestability theory, also refrain from restricting output, lest their market share be snatched by new entrants. In other words, even monopolists behave as though their market was fully competitive, their production and pricing decisions and actions constrained by the "ghosts" of potential and threatening newcomers.

In a CRIEFF Discussion Paper titled "From Walrasian Oligopolies to Natural Monopoly - An Evolutionary Model of Market Structure", the authors argue that: "Under decreasing returns and some fixed cost, the market grows to 'full capacity' at Walrasian equilibrium (oligopolies); on the other hand, if returns are increasing, the unique long run outcome involves a profit-maximising monopolist".

While intellectually tempting, contestability theory has little to do with the rough and tumble world of business.

Contestable markets simply do not exist. Entering a market is never cheap, nor easy. Huge sunk costs are required to counter the network effects of more veteran products as well as the competitors' brand recognition and ability and inclination to collude to set prices.

Victory is not guaranteed, losses loom constantly, investors are forever edgy, customers are fickle, bankers itchy, capital markets gloomy, suppliers beholden to the competition. Barriers to entry are almost always formidable and often insurmountable.

In the real world, tacit and implicit understandings regarding prices and competitive behavior prevail among competitors within oligopolies. Establishing a reputation for collusive predatory pricing deters potential entrants.

And a dominant position in one market can be leveraged into another, connected or derivative, market.

But not everyone agrees. Ellis Hawley believed that industries should be encouraged to grow because only size guarantees survival, lower prices, and innovation. Louis Galambos, a business historian at Johns Hopkins University, published a 1994 paper titled "The Triumph of Oligopoly". In it, he strove to explain why firms and managers - and even consumers - prefer oligopolies to both monopolies and completely free markets with numerous entrants.

Oligopolies, as opposed to monopolies, attract less attention from trustbusters. Quoted in the Wall Street Journal on March 8, 1999, Galambos wrote: "Oligopolistic competition proved to be beneficial ... because it prevented ossification, ensuring that managements would keep their organizations innovative and efficient over the long run".

In his recently published tome "The Free-Market Innovation Machine - Analysing the Growth Miracle of Capitalism", William Baumol of Princeton University, concurs. He daringly argues that productive innovation is at its most prolific and qualitative in oligopolistic markets.

Because firms in an oligopoly characteristically charge above-equilibrium (i.e., high) prices - the only way to compete is through product differentiation. This is achieved by constant innovation - and by incessant advertising.

Baumol maintains that oligopolies are the real engines of growth and higher living standards and urges antitrust authorities to leave them be. Lower regulatory costs, economies of scale and of scope, excess profits due to the ability to set prices in a less competitive market - allow firms in an oligopoly to invest heavily in research and development. A new drug costs c. $800 million to develop and get approved, according to Joseph DiMasi of Tufts University's Center for the Study of Drug Development, quoted in The wall Street Journal.

In a paper titled "If Cartels Were Legal, Would Firms Fix Prices", implausibly published by the Antitrust Division of the US Department of Justice in 1997, Andrew Dick demonstrated, counterintuitively, that cartels are more likely to form in industries and sectors with many producers. The more concentrated the industry - i.e., the more oligopolistic it is - the less likely were cartels to emerge.

Cartels are conceived in order to cut members' costs of sales. Small firms are motivated to pool their purchasing and thus secure discounts. Dick draws attention to a paradox: mergers provoke the competitors of the merging firms to complain. Why do they act this way? Mergers and acquisitions enhance market concentration.

According to conventional wisdom, the more concentrated the industry, the higher the prices every producer or supplier can charge. Why would anyone complain about being able to raise prices in a post-merger market? Apparently, conventional wisdom is wrong. Market concentration leads to price wars, to the great benefit of the consumer. This is why firms find the mergers and acquisitions of their competitors worrisome. America's soft drink market is ruled by two firms - Pepsi and Coca- Cola. Yet, it has been the scene of ferocious price competition for decades. "The Economist", in its review of the paper, summed it up neatly: "The story of America's export cartels suggests that when firms decide to co-operate, rather than compete, they do not always have price increases in mind. Sometimes, they get together simply in order to cut costs, which can be of benefit to consumers".

The very atom of antitrust thinking - the firm - has changed in the last two decades. No longer hierarchical and rigid, business resembles self-assembling, nimble, ad- hoc networks of entrepreneurship superimposed on ever- shifting product groups and profit and loss centers.

Competition used to be extraneous to the firm - now it is commonly an internal affair among autonomous units within a loose overall structure. This is how Jack "neutron" Welsh deliberately structured General Electric.

AOL-Time Warner hosts many competing units, yet no one ever instructs them either to curb this internecine competition, to stop cannibalizing each other, or to start collaborating synergistically. The few mammoth agencies that rule the world of advertising now host a clutch of creative boutiques comfortably ensconced behind Chinese walls. Such outfits often manage the accounts of competitors under the same corporate umbrella.

Most firms act as intermediaries. They consume inputs, process them, and sell them as inputs to other firms. Thus, many firms are concomitantly consumers, producers, and suppliers. In a paper published last year and titled "Productive Differentiation in Successive Vertical Oligopolies", that authors studied: "An oligopoly model with two brands. Each downstream firm chooses one brand to sell on a final market. The upstream firms specialize in the production of one input specifically designed for the production of one brand, but they also produce he input for the other brand at an extra cost. (They concluded that) when more downstream brands choose one brand, more upstream firms will specialize in the input specific to that brand, and vice versa. Hence, multiple equilibria are possible and the softening effect of brand differentiation on competition might not be strong enough to induce maximal differentiation" (and, thus, minimal competition).

Both scholars and laymen often mix their terms.

Competition does not necessarily translate either to variety or to lower prices. Many consumers are turned off by too much choice. Lower prices sometimes deter competition and new entrants. A multiplicity of vendors, retail outlets, producers, or suppliers does not always foster competition. And many products have umpteen substitutes. Consider films - cable TV, satellite, the Internet, cinemas, video rental shops, all offer the same service: visual content delivery.

And then there is the issue of technological standards. It is incalculably easier to adopt a single worldwide or industry-wide standard in an oligopolistic environment.

Standards are known to decrease prices by cutting down R&D expenditures and systematizing components.

Or, take innovation. It is used not only to differentiate one's products from the competitors' - but to introduce new generations and classes of products. Only firms with a dominant market share have both the incentive and the wherewithal to invest in R&D and in subsequent branding and marketing.

But oligopolies in deregulated markets have sometimes substituted price fixing, extended intellectual property rights, and competitive restraint for market regulation.

Still, Schumpeter believed in the faculty of "disruptive technologies" and "destructive creation" to check the power of oligopolies to set extortionate prices, lower customer care standards, or inhibit competition.

Linux threatens Windows. Opera nibbles at Microsoft's Internet Explorer. Amazon drubbed traditional booksellers. eBay thrashes Amazon. Bell was forced by Covad Communications to implement its own technology, the DSL broadband phone line.

Barring criminal behavior, there is little that oligopolies can do to defend themselves against these forces. They can acquire innovative firms, intellectual property, and talent. They can form strategic partnerships. But the supply of innovators and new technologies is infinite - and the resources of oligopolies, however mighty, are finite.

The market is stronger than any of its participants, regardless of the hubris of some, or the paranoia of others.

XXXI. Anarchy as an Organizing Principle

The recent spate of accounting fraud scandals signals the end of an era. Disillusionment and disenchantment with American capitalism may yet lead to a tectonic ideological shift from laissez faire and self regulation to state intervention and regulation. This would be the reversal of a trend dating back to Thatcher in Britain and Reagan in the USA. It would also cast some fundamental - and way more ancient - tenets of free-marketry in grave doubt.

Markets are perceived as self-organizing, self-assembling, exchanges of information, goods, and services. Adam Smith's "invisible hand" is the sum of all the mechanisms whose interaction gives rise to the optimal allocation of economic resources. The market's great advantages over central planning are precisely its randomness and its lack of self-awareness.

Market participants go about their egoistic business, trying to maximize their utility, oblivious of the interests and action of all, bar those they interact with directly.

Somehow, out of the chaos and clamor, a structure emerges of order and efficiency unmatched. Man is incapable of intentionally producing better outcomes.

Thus, any intervention and interference are deemed to be detrimental to the proper functioning of the economy.

It is a minor step from this idealized worldview back to the Physiocrats, who preceded Adam Smith, and who propounded the doctrine of "laissez faire, laissez passer" - the hands-off battle cry. Theirs was a natural religion. The market, as an agglomeration of individuals, they thundered, was surely entitled to enjoy the rights and freedoms accorded to each and every person. John Stuart Mill weighed against the state's involvement in the economy in his influential and exquisitely-timed "Principles of Political Economy", published in 1848.

Undaunted by mounting evidence of market failures - for instance to provide affordable and plentiful public goods - this flawed theory returned with a vengeance in the last two decades of the past century. Privatization, deregulation, and self-regulation became faddish buzzwords and part of a global consensus propagated by both commercial banks and multilateral lenders.

As applied to the professions - to accountants, stock brokers, lawyers, bankers, insurers, and so on - self- regulation was premised on the belief in long-term self- preservation. Rational economic players and moral agents are supposed to maximize their utility in the long-run by observing the rules and regulations of a level playing field.

This noble propensity seemed, alas, to have been tampered by avarice and narcissism and by the immature inability to postpone gratification. Self-regulation failed so spectacularly to conquer human nature that its demise gave rise to the most intrusive statal stratagems ever devised. In both the UK and the USA, the government is much more heavily and pervasively involved in the minutia of accountancy, stock dealing, and banking than it was only two years ago.

But the ethos and myth of "order out of chaos" - with its proponents in the exact sciences as well - ran deeper than that. The very culture of commerce was thoroughly permeated and transformed. It is not surprising that the Internet - a chaotic network with an anarchic modus operandi - flourished at these times.

The dotcom revolution was less about technology than about new ways of doing business - mixing umpteen irreconcilable ingredients, stirring well, and hoping for the best. No one, for instance, offered a linear revenue model of how to translate "eyeballs" - i.e., the number of visitors to a Web site - to money ("monetizing"). It was dogmatically held to be true that, miraculously, traffic - a chaotic phenomenon - will translate to profit - hitherto the outcome of painstaking labour.

Privatization itself was such a leap of faith. State owned assets - including utilities and suppliers of public goods such as health and education - were transferred wholesale to the hands of profit maximizers. The implicit belief was that the price mechanism will provide the missing planning and regulation. In other words, higher prices were supposed to guarantee an uninterrupted service.

Predictably, failure ensued - from electricity utilities in California to railway operators in Britain.

The simultaneous crumbling of these urban legends - the liberating power of the Net, the self-regulating markets, the unbridled merits of privatization - inevitably gave rise to a backlash.

The state has acquired monstrous proportions in the decades since the Second world War. It is about to grow further and to digest the few sectors hitherto left untouched. To say the least, these are not good news. But we libertarians - proponents of both individual freedom and individual responsibility - have brought it on ourselves by thwarting the work of that invisible regulator - the market.

XXXII. Narcissism in the Boardroom

The perpetrators of the recent spate of financial frauds in the USA acted with callous disregard for both their employees and shareholders - not to mention other stakeholders. Psychologists have often remote-diagnosed them as "malignant, pathological narcissists".

Narcissists are driven by the need to uphold and maintain a false self - a concocted, grandiose, and demanding psychological construct typical of the narcissistic personality disorder. The false self is projected to the world in order to garner "narcissistic supply" - adulation, admiration, or even notoriety and infamy. Any kind of attention is usually deemed by narcissists to be preferable to obscurity.

The false self is suffused with fantasies of perfection, grandeur, brilliance, infallibility, immunity, significance, omnipotence, omnipresence, and omniscience. To be a narcissist is to be convinced of a great, inevitable personal destiny. The narcissist is preoccupied with ideal love, the construction of brilliant, revolutionary scientific theories, the composition or authoring or painting of the greatest work of art, the founding of a new school of thought, the attainment of fabulous wealth, the reshaping of a nation or a conglomerate, and so on. The narcissist never sets realistic goals to himself. He is forever preoccupied with fantasies of uniqueness, record breaking, or breathtaking achievements. His verbosity reflects this propensity.

Reality is, naturally, quite different and this gives rise to a "grandiosity gap". The demands of the false self are never satisfied by the narcissist's accomplishments, standing, wealth, clout, sexual prowess, or knowledge. The narcissist's grandiosity and sense of entitlement are equally incommensurate with his achievements.

To bridge the grandiosity gap, the malignant (pathological) narcissist resorts to shortcuts. These very often lead to fraud.

The narcissist cares only about appearances. What matters to him are the facade of wealth and its attendant social status and narcissistic supply. Witness the travestied extravagance of Tyco's Denis Kozlowski. Media attention only exacerbates the narcissist's addiction and makes it incumbent on him to go to ever-wilder extremes to secure uninterrupted supply from this source.

The narcissist lacks empathy - the ability to put himself in other people's shoes. He does not recognize boundaries - personal, corporate, or legal. Everything and everyone are to him mere instruments, extensions, objects unconditionally and uncomplainingly available in his pursuit of narcissistic gratification.

This makes the narcissist perniciously exploitative. He uses, abuses, devalues, and discards even his nearest and dearest in the most chilling manner. The narcissist is utility- driven, obsessed with his overwhelming need to reduce his anxiety and regulate his labile sense of self- worth by securing a constant supply of his drug - attention. American executives acted without compunction when they raided their employees' pension funds - as did Robert Maxwell a generation earlier in Britain.

The narcissist is convinced of his superiority - cerebral or physical. To his mind, he is a Gulliver hamstrung by a horde of narrow-minded and envious Lilliputians. The dotcom "new economy" was infested with "visionaries" with a contemptuous attitude towards the mundane: profits, business cycles, conservative economists, doubtful journalists, and cautious analysts.

Yet, deep inside, the narcissist is painfully aware of his addiction to others - their attention, admiration, applause, and affirmation. He despises himself for being thus dependent. He hates people the same way a drug addict hates his pusher. He wishes to "put them in their place", humiliate them, demonstrate to them how inadequate and imperfect they are in comparison to his regal self and how little he craves or needs them.

The narcissist regards himself as one would an expensive present, a gift to his company, to his family, to his neighbours, to his colleagues, to his country. This firm conviction of his inflated importance makes him feel entitled to special treatment, special favors, special outcomes, concessions, subservience, immediate gratification, obsequiousness, and lenience. It also makes him feel immune to mortal laws and somehow divinely protected and insulated from the inevitable consequences of his deeds and misdeeds.

The self-destructive narcissist plays the role of the "bad guy" (or "bad girl"). But even this is within the traditional social roles cartoonishly exaggerated by the narcissist to attract attention. Men are likely to emphasise intellect, power, aggression, money, or social status. Narcissistic women are likely to emphasise body, looks, charm, sexuality, feminine "traits", homemaking, children and childrearing.

Punishing the wayward narcissist is a veritable catch-22.

A jail term is useless as a deterrent if it only serves to focus attention on the narcissist. Being infamous is second best to being famous - and far preferable to being ignored.

The only way to effectively punish a narcissist is to withhold narcissistic supply from him and thus to prevent him from becoming a notorious celebrity.

Given a sufficient amount of media exposure, book contracts, talk shows, lectures, and public attention - the narcissist may even consider the whole grisly affair to be emotionally rewarding. To the narcissist, freedom, wealth, social status, family, vocation - are all means to an end.

And the end is attention. If he can secure attention by being the big bad wolf - the narcissist unhesitatingly transforms himself into one. Lord Archer, for instance, seems to be positively basking in the media circus provoked by his prison diaries.

The narcissist does not victimise, plunder, terrorise and abuse others in a cold, calculating manner. He does so offhandedly, as a manifestation of his genuine character.

To be truly "guilty" one needs to intend, to deliberate, to contemplate one's choices and then to choose one's acts.

The narcissist does none of these.

Thus, punishment breeds in him surprise, hurt and seething anger. The narcissist is stunned by society's insistence that he should be held accountable for his deeds and penalized accordingly. He feels wronged, baffled, injured, the victim of bias, discrimination and injustice.

He rebels and rages.

Depending upon the pervasiveness of his magical thinking, the narcissist may feel besieged by overwhelming powers, forces cosmic and intrinsically ominous. He may develop compulsive rites to fend off this "bad", unwarranted, persecutory influences.

The narcissist, very much the infantile outcome of stunted personal development, engages in magical thinking. He feels omnipotent, that there is nothing he couldn't do or achieve if only he sets his mind to it. He feels omniscient - he rarely admits to ignorance and regards his intuitions and intellect as founts of objective data.

Thus, narcissists are haughtily convinced that introspection is a more important and more efficient (not to mention easier to accomplish) method of obtaining knowledge than the systematic study of outside sources of information in accordance with strict and tedious curricula. Narcissists are "inspired" and they despise hamstrung technocrats.

To some extent, they feel omnipresent because they are either famous or about to become famous or because their product is selling or is being manufactured globally.

Deeply immersed in their delusions of grandeur, they firmly believe that their acts have - or will have - a great influence not only on their firm, but on their country, or even on Mankind. Having mastered the manipulation of their human environment - they are convinced that they will always "get away with it". They develop hubris and a false sense of immunity.

Narcissistic immunity is the (erroneous) feeling, harboured by the narcissist, that he is impervious to the consequences of his actions, that he will never be effected by the results of his own decisions, opinions, beliefs, deeds and misdeeds, acts, inaction, or membership of certain groups, that he is above reproach and punishment, that, magically, he is protected and will miraculously be saved at the last moment. Hence the audacity, simplicity, and transparency of some of the fraud and corporate looting in the 1990's. Narcissists rarely bother to cover their traces, so great is their disdain and conviction that they are above mortal laws and wherewithal.

What are the sources of this unrealistic appraisal of situations and events? The false self is a childish response to abuse and trauma.

Abuse is not limited to sexual molestation or beatings.

Smothering, doting, pampering, over-indulgence, treating the child as an extension of the parent, not respecting the child's boundaries, and burdening the child with excessive expectations are also forms of abuse.

The child reacts by constructing false self that is possessed of everything it needs in order to prevail: unlimited and instantaneously available Harry Potter-like powers and wisdom. The false self, this Superman, is indifferent to abuse and punishment. This way, the child's true self is shielded from the toddler's harsh reality.

This artificial, maladaptive separation between a vulnerable (but not punishable) true self and a punishable (but invulnerable) false self is an effective mechanism. It isolates the child from the unjust, capricious, emotionally dangerous world that he occupies. But, at the same time, it fosters in him a false sense of "nothing can happen to me, because I am not here, I am not available to be punished, hence I am immune to punishment".

The comfort of false immunity is also yielded by the narcissist's sense of entitlement. In his grandiose delusions, the narcissist is sui generis, a gift to humanity, a precious, fragile, object. Moreover, the narcissist is convinced both that this uniqueness is immediately discernible - and that it gives him special rights. The narcissist feels that he is protected by some cosmological law pertaining to "endangered species".

He is convinced that his future contribution to others - his firm, his country, humanity - should and does exempt him from the mundane: daily chores, boring jobs, recurrent tasks, personal exertion, orderly investment of resources and efforts, laws and regulations, social conventions, and so on.

The narcissist is entitled to a "special treatment": high living standards, constant and immediate catering to his needs, the eradication of any friction with the humdrum and the routine, an all-engulfing absolution of his sins, fast track privileges (to higher education, or in his encounters with bureaucracies, for instance). Punishment, trusts the narcissist, is for ordinary people, where no great loss to humanity is involved.

Narcissists are possessed of inordinate abilities to charm, to convince, to seduce, and to persuade. Many of them are gifted orators and intellectually endowed. Many of them work in in politics, the media, fashion, show business, the arts, medicine, or business, and serve as religious leaders.

By virtue of their standing in the community, their charisma, or their ability to find the willing scapegoats, they do get exempted many times. Having recurrently "got away with it" - they develop a theory of personal immunity, founded upon some kind of societal and even cosmic "order" in which certain people are above punishment.

But there is a fourth, simpler, explanation. The narcissist lacks self-awareness. Divorced from his true self, unable to empathise (to understand what it is like to be someone else), unwilling to constrain his actions to cater to the feelings and needs of others - the narcissist is in a constant dreamlike state.

To the narcissist, his life is unreal, like watching an autonomously unfolding movie. The narcissist is a mere spectator, mildly interested, greatly entertained at times.

He does not "own" his actions. He, therefore, cannot understand why he should be punished and when he is, he feels grossly wronged.

So convinced is the narcissist that he is destined to great things - that he refuses to accept setbacks, failures and punishments. He regards them as temporary, as the outcomes of someone else's errors, as part of the future mythology of his rise to power/brilliance/wealth/ideal love, etc. Being punished is a diversion of his precious energy and resources from the all-important task of fulfilling his mission in life.

The narcissist is pathologically envious of people and believes that they are equally envious of him. He is paranoid, on guard, ready to fend off an imminent attack.

A punishment to the narcissist is a major surprise and a nuisance but it also validates his suspicion that he is being persecuted. It proves to him that strong forces are arrayed against him.

He tells himself that people, envious of his achievements and humiliated by them, are out to get him. He constitutes a threat to the accepted order. When required to pay for his misdeeds, the narcissist is always disdainful and bitter and feels misunderstood by his inferiors.

Cooked books, corporate fraud, bending the (GAAP or other) rules, sweeping problems under the carpet, over- promising, making grandiose claims (the "vision thing") - are hallmarks of a narcissist in action. When social cues and norms encourage such behaviour rather than inhibit it - in other words, when such behaviour elicits abundant narcissistic supply - the pattern is reinforced and become entrenched and rigid. Even when circumstances change, the narcissist finds it difficult to adapt, shed his routines, and replace them with new ones. He is trapped in his past success. He becomes a swindler.

But pathological narcissism is not an isolated phenomenon. It is embedded in our contemporary culture.

The West's is a narcissistic civilization. It upholds narcissistic values and penalizes alternative value- systems. From an early age, children are taught to avoid self-criticism, to deceive themselves regarding their capacities and attainments, to feel entitled, and to exploit others.

As Lilian Katz observed in her important paper, "Distinctions between Self-Esteem and Narcissism: Implications for Practice", published by the Educational Resources Information Center, the line between enhancing self-esteem and fostering narcissism is often blurred by educators and parents.

Both Christopher Lasch in "The Culture of Narcissism" and Theodore Millon in his books about personality disorders, singled out American society as narcissistic.

Litigiousness may be the flip side of an inane sense of entitlement. Consumerism is built on this common and communal lie of "I can do anything I want and possess everything I desire if I only apply myself to it" and on the pathological envy it fosters.

Not surprisingly, narcissistic disorders are more common among men than among women. This may be because narcissism conforms to masculine social mores and to the prevailing ethos of capitalism. Ambition, achievements, hierarchy, ruthlessness, drive - are both social values and narcissistic male traits. Social thinkers like the aforementioned Lasch speculated that modern American culture - a self-centred one - increases the rate of incidence of the narcissistic personality disorder.

Otto Kernberg, a notable scholar of personality disorders, confirmed Lasch's intuition: "Society can make serious psychological abnormalities, which already exist in some percentage of the population, seem to be at least superficially appropriate".

In their book "Personality Disorders in Modern Life", Theodore Millon and Roger Davis state, as a matter of fact, that pathological narcissism was once the preserve of "the royal and the wealthy" and that it "seems to have gained prominence only in the late twentieth century".

Narcissism, according to them, may be associated with "higher levels of Maslow's hierarchy of needs ...

Individuals in less advantaged nations .. are too busy trying (to survive) ... to be arrogant and grandiose".

They - like Lasch before them - attribute pathological narcissism to "a society that stresses individualism and self-gratification at the expense of community, namely the United States." They assert that the disorder is more prevalent among certain professions with "star power" or respect. "In an individualistic culture, the narcissist is 'God's gift to the world'. In a collectivist society, the narcissist is 'God's gift to the collective".

Millon quotes Warren and Caponi's "The Role of Culture in the Development of Narcissistic Personality Disorders in America, Japan and Denmark": "Individualistic narcissistic structures of self-regard (in individualistic societies) ... are rather self-contained and independent ... (In collectivist cultures) narcissistic configurations of the we-self ... denote self-esteem derived from strong identification with the reputation and honor of the family, groups, and others in hierarchical relationships".

Still, there are malignant narcissists among subsistence farmers in Africa, nomads in the Sinai desert, day laborers in east Europe, and intellectuals and socialites in Manhattan. Malignant narcissism is all-pervasive and independent of culture and society. It is true, though, that the way pathological narcissism manifests and is experienced is dependent on the particulars of societies and cultures.

In some cultures, it is encouraged, in others suppressed. In some societies it is channeled against minorities - in others it is tainted with paranoia. In collectivist societies, it may be projected onto the collective, in individualistic societies, it is an individual's trait.

Yet, can families, organizations, ethnic groups, churches, and even whole nations be safely described as "narcissistic" or "pathologically self-absorbed"? Can we talk about a "corporate culture of narcissism"? Human collectives - states, firms, households, institutions, political parties, cliques, bands - acquire a life and a character all their own. The longer the association or affiliation of the members, the more cohesive and conformist the inner dynamics of the group, the more persecutory or numerous its enemies, competitors, or adversaries, the more intensive the physical and emotional experiences of the individuals it is comprised of, the stronger the bonds of locale, language, and history - the more rigorous might an assertion of a common pathology be.

Such an all-pervasive and extensive pathology manifests itself in the behavior of each and every member. It is a defining - though often implicit or underlying - mental structure. It has explanatory and predictive powers. It is recurrent and invariable - a pattern of conduct melding distorted cognition and stunted emotions. And it is often vehemently denied.

XXXIII. The Revolt of the Poor

The Demise of Intellectual Property?

In 1997, I published a book of short stories in Israel. The publishing house belongs to Israel's leading (and exceedingly wealthy) newspaper. I signed a contract which stated that I am entitled to receive 8% of the income from the sales of the book after commissions payable to distributors, shops, etc. A few months later (1997), I won the coveted Prize of the Ministry of Education (for short prose). The prize money (a few thousand DMs) was snatched by the publishing house on the legal grounds that all the money generated by the book belongs to them because they own the copyright.

In the mythology generated by capitalism to pacify the masses, the myth of intellectual property stands out. It goes like this: if the rights to intellectual property were not defined and enforced, commercial entrepreneurs would not have taken on the risks associated with publishing books, recording records, and preparing multimedia products. As a result, creative people will have suffered because they will have found no way to make their works accessible to the public. Ultimately, it is the public which pays the price of piracy, goes the refrain.

But this is factually untrue. In the USA there is a very limited group of authors who actually live by their pen.

Only select musicians eke out a living from their noisy vocation (most of them rock stars who own their labels - George Michael had to fight Sony to do just that) and very few actors come close to deriving subsistence level income from their profession. All these can no longer be thought of as mostly creative people. Forced to defend their intellectual property rights and the interests of Big Money, Madonna, Michael Jackson, Schwarzenegger and Grisham are businessmen at least as much as they are artists.

Economically and rationally, we should expect that the costlier a work of art is to produce and the narrower its market - the more emphasized its intellectual property rights.

Consider a publishing house.

A book which costs 50,000 DM to produce with a potential audience of 1000 purchasers (certain academic texts are like this) - would have to be priced at a a minimum of 100 DM to recoup only the direct costs. If illegally copied (thereby shrinking the potential market as some people will prefer to buy the cheaper illegal copies) - its price would have to go up prohibitively to recoup costs, thus driving out potential buyers. The story is different if a book costs 10,000 DM to produce and is priced at 20 DM a copy with a potential readership of 1,000,000 readers. Piracy (illegal copying) should in this case be more readily tolerated as a marginal phenomenon.

This is the theory. But the facts are tellingly different. The less the cost of production (brought down by digital technologies) - the fiercer the battle against piracy. The bigger the market - the more pressure is applied to clamp down on samizdat entrepreneurs.

Governments, from China to Macedonia, are introducing intellectual property laws (under pressure from rich world countries) and enforcing them belatedly. But where one factory is closed on shore (as has been the case in mainland China) - two sprout off shore (as is the case in Hong Kong and in Bulgaria).

But this defies logic: the market today is global, the costs of production are lower (with the exception of the music and film industries), the marketing channels more numerous (half of the income of movie studios emanates from video cassette sales), the speedy recouping of the investment virtually guaranteed. Moreover, piracy thrives in very poor markets in which the population would anyhow not have paid the legal price. The illegal product is inferior to the legal copy (it comes with no literature, warranties or support). So why should the big manufacturers, publishing houses, record companies, software companies and fashion houses worry? The answer lurks in history. Intellectual property is a relatively new notion. In the near past, no one considered knowledge or the fruits of creativity (art, design) as "patentable", or as someone's "property". The artist was but a mere channel through which divine grace flowed.

Texts, discoveries, inventions, works of art and music, designs - all belonged to the community and could be replicated freely. True, the chosen ones, the conduits, were honoured but were rarely financially rewarded. They were commissioned to produce their works of art and were salaried, in most cases. Only with the advent of the Industrial Revolution were the embryonic precursors of intellectual property introduced but they were still limited to industrial designs and processes, mainly as embedded in machinery. The patent was born. The more massive the market, the more sophisticated the sales and marketing techniques, the bigger the financial stakes - the larger loomed the issue of intellectual property. It spread from machinery to designs, processes, books, newspapers, any printed matter, works of art and music, films (which, at their beginning were not considered art), software, software embedded in hardware, processes, business methods, and even unto genetic material.

Intellectual property rights - despite their noble title - are less about the intellect and more about property. This is Big Money: the markets in intellectual property outweigh the total industrial production in the world. The aim is to secure a monopoly on a specific work. This is an especially grave matter in academic publishing where small- circulation magazines do not allow their content to be quoted or published even for non-commercial purposes. The monopolists of knowledge and intellectual products cannot allow competition anywhere in the world - because theirs is a world market. A pirate in Skopje is in direct competition with Bill Gates. When he sells a pirated Microsoft product - he is depriving Microsoft not only of its income, but of a client (=future income), of its monopolistic status (cheap copies can be smuggled into other markets), and of its competition-deterring image (a major monopoly preserving asset). This is a threat which Microsoft cannot tolerate. Hence its efforts to eradicate piracy - successful in China and an utter failure in legally- relaxed Russia.

But what Microsoft fails to understand is that the problem lies with its pricing policy - not with the pirates. When faced with a global marketplace, a company can adopt one of two policies: either to adjust the price of its products to a world average of purchasing power - or to use discretionary differential pricing (as pharmaceutical companies were forced to do in Brazil and South Africa).

A Macedonian with an average monthly income of 160 USD clearly cannot afford to buy the Encyclopaedia Encarta Deluxe. In America, 50 USD is the income generated in 4 hours of an average job. In Macedonian terms, therefore, the Encarta is 20 times more expensive.

Either the price should be lowered in the Macedonian market - or an average world price should be fixed which will reflect an average global purchasing power.

Something must be done about it not only from the economic point of view. Intellectual products are very price sensitive and highly elastic. Lower prices will be more than compensated for by a much higher sales volume. There is no other way to explain the pirate industries: evidently, at the right price a lot of people are willing to buy these products. High prices are an implicit trade-off favouring small, elite, select, rich world clientele. This raises a moral issue: are the children of Macedonia less worthy of education and access to the latest in human knowledge and creation? Two developments threaten the future of intellectual property rights. One is the Internet. Academics, fed up with the monopolistic practices of professional publications - already publish on the web in big numbers.

I published a few book on the Internet and they can be freely downloaded by anyone who has a computer or a modem. The full text of electronic magazines, trade journals, billboards, professional publications, and thousands of books is available online. Hackers even made sites available from which it is possible to download whole software and multimedia products. It is very easy and cheap to publish on the Internet, the barriers to entry are virtually nil. Web pages are hosted free of charge, and authoring and publishing software tools are incorporated in most word processors and browser applications. As the Internet acquires more impressive sound and video capabilities it will proceed to threaten the monopoly of the record companies, the movie studios and so on.

The second development is also technological. The oft- vindicated Moore's law predicts the doubling of computer memory capacity every 18 months. But memory is only one aspect of computing power. Another is the rapid simultaneous advance on all technological fronts.

Miniaturization and concurrent empowerment by software tools have made it possible for individuals to emulate much larger scale organizations successfully. A single person, sitting at home with 5000 USD worth of equipment can fully compete with the best products of the best printing houses anywhere. CD-ROMs can be written on, stamped and copied in house. A complete music studio with the latest in digital technology has been condensed to the dimensions of a single chip. This will lead to personal publishing, personal music recording, and the to the digitization of plastic art. But this is only one side of the story.

The relative advantage of the intellectual property corporation does not consist exclusively in its technological prowess. Rather it lies in its vast pool of capital, its marketing clout, market positioning, sales organization, and distribution network.

Nowadays, anyone can print a visually impressive book, using the above-mentioned cheap equipment. But in an age of information glut, it is the marketing, the media campaign, the distribution, and the sales that determine the economic outcome.

This advantage, however, is also being eroded.

First, there is a psychological shift, a reaction to the commercialization of intellect and spirit. Creative people are repelled by what they regard as an oligarchic establishment of institutionalized, lowest common denominator art and they are fighting back.

Secondly, the Internet is a huge (200 million people), truly cosmopolitan market, with its own marketing channels freely available to all. Even by default, with a minimum investment, the likelihood of being seen by surprisingly large numbers of consumers is high.

I published one book the traditional way - and another on the Internet. In 50 months, I have received 6500 written responses regarding my electronic book. Well over 500,000 people read it (my Link Exchange meter registered c. 2,000,000 impressions since November 1998). It is a textbook (in psychopathology) - and 500,000 readers is a lot for this kind of publication. I am so satisfied that I am not sure that I will ever consider a traditional publisher again. Indeed, my last book was published in the very same way.

The demise of intellectual property has lately become abundantly clear. The old intellectual property industries are fighting tooth and nail to preserve their monopolies (patents, trademarks, copyright) and their cost advantages in manufacturing and marketing.

But they are faced with three inexorable processes which are likely to render their efforts vain: The Newspaper Packaging Print newspapers offer package deals of cheap content subsidized by advertising. In other words, the advertisers pay for content formation and generation and the reader has no choice but be exposed to commercial messages as he or she studies the content.

This model - adopted earlier by radio and television - rules the internet now and will rule the wireless internet in the future. Content will be made available free of all pecuniary charges. The consumer will pay by providing his personal data (demographic data, consumption patterns and preferences and so on) and by being exposed to advertising. Subscription based models are bound to fail.

Thus, content creators will benefit only by sharing in the advertising cake. They will find it increasingly difficult to implement the old models of royalties paid for access or of ownership of intellectual property.

Disintermediation A lot of ink has been spilt regarding this important trend.

The removal of layers of brokering and intermediation - mainly on the manufacturing and marketing levels - is a historic development (though the continuation of a long term trend).

Consider music for instance. Streaming audio on the internet or downloadable MP3 files will render the CD obsolete. The internet also provides a venue for the marketing of niche products and reduces the barriers to entry previously imposed by the need to engage in costly marketing ("branding") campaigns and manufacturing activities.

This trend is also likely to restore the balance between artist and the commercial exploiters of his product. The very definition of "artist" will expand to include all creative people. One will seek to distinguish oneself, to "brand" oneself and to auction off one's services, ideas, products, designs, experience, etc. This is a return to pre- industrial times when artisans ruled the economic scene.

Work stability will vanish and work mobility will increase in a landscape of shifting allegiances, head hunting, remote collaboration and similar labour market trends.

Market Fragmentation In a fragmented market with a myriad of mutually exclusive market niches, consumer preferences and marketing and sales channels - economies of scale in manufacturing and distribution are meaningless.

Narrowcasting replaces broadcasting, mass customization replaces mass production, a network of shifting affiliations replaces the rigid owned-branch system. The decentralized, intrapreneurship-based corporation is a late response to these trends. The mega-corporation of the future is more likely to act as a collective of start-ups than as a homogeneous, uniform (and, to conspiracy theorists, sinister) juggernaut it once was.

XXXIV. The Kidnapping of Content

http://www.plagiarism.org and http://www.Turnitin.com

Latin kidnapped the word "plagion" from ancient Greek and it ended up in English as "plagiarism". It literally means "to kidnap" - most commonly, to misappropriate content and wrongly attribute it to oneself. It is a close kin of piracy. But while the software or content pirate does not bother to hide or alter the identity of the content's creator or the software's author - the plagiarist does.

Plagiarism is, therefore, more pernicious than piracy.

Enter Turnit.com. An off-shoot of www.iparadigms.com, it was established by a group of concerned (and commercially minded) scientists from UC Berkeley.

Whereas digital rights and asset management systems are geared to prevent piracy - plagiarism.org and its commercial arm, Turnit.com, are the cyber equivalent of a law enforcement agency, acting after the fact to discover the culprits and uncover their misdeeds. This, they claim, is a first stage on the way to a plagiarism-free Internet- based academic community of both teachers and students, in which the educational potential of the Internet can be fully realized.

The problem is especially severe in academia. Various surveys have discovered that a staggering 80%(!) of US students cheat and that at least 30% plagiarize written material. The Internet only exacerbated this problem.

More than 200 cheat-sites have sprung up, with thousands of papers available on-line and tens of thousands of satisfied plagiarists the world over. Some of these hubs - like cheater.com, cheatweb or cheathouse.com - make no bones about their offerings. Many of them are located outside the USA (in Germany, or Asia) and at least one offers papers in a few languages, Hebrew included.

The problem, though, is not limited to the ivory towers. E- zines plagiarize. The print media plagiarize. Individual journalists plagiarize, many with abandon. Even advertising agencies and financial institutions plagiarize.

The amount of material out there is so overwhelming that the plagiarist develops a (fairly justified) sense of immunity. The temptation is irresistible, the rewards big and the pressures of modern life great.

Some of the plagiarists are straightforward copiers. Others substitute words, add sentences, or combine two or more sources. This raises the question: "when should content be considered original and when - plagiarized?". Should the test for plagiarism be more stringent than the one applied by the Copyright Office? And what rights are implicitly granted by the material's genuine authors or publishers once they place the content on the Internet? Is the Web a public domain and, if yes, to what extent? These questions are not easily answered. Consider reports generated by users from a database. Are these reports copyrighted - and if so, by whom - by the database compiler or by the user who defined the parameters, without which the reports in question would have never been generated? What about "fair use" of text and works of art? In the USA, the backlash against digital content piracy and plagiarism has reached preposterous legal, litigious and technological nadirs.

Plagiarism.org has developed a statistics-based technology (the "Document Source Analysis") which creates a "digital fingerprint" of every document in its database. Web crawlers are then unleashed to scour the Internet and find documents with the same fingerprint and a colour-coded report is generated. An instructor, teacher, or professor can then use the report to prove plagiarism and cheating.

Piracy is often considered to be a form of viral marketing (even by software developers and publishers). The author's, publisher's, or software house's data are preserved intact in the cracked copy. Pirated copies of e- books often contribute to increased sales of the print versions. Crippled versions of software or pirated copies of software without its manuals, updates and support - often lead to the purchase of a licence. Not so with plagiarism. The identities of the author, editor, publisher and illustrator are deleted and replaced by the details of the plagiarist. And while piracy is discussed freely and fought vigorously - the discussion of plagiarism is still taboo and actively suppressed by image-conscious and endowment-weary academic institutions and media. It is an uphill struggle but plagiarism.org has taken the first resolute step.

XXXV. The Economics of Spam

Tennessee resident K. C. "Khan" Smith owes the internet service provider EarthLink $24 million. According to the CNN, in August 2001 he was slapped with a lawsuit accusing him of violating federal and state Racketeering Influenced and Corrupt Organizations (RICO) statutes, the federal Computer Fraud and Abuse Act of 1984, the federal Electronic Communications Privacy Act of 1986 and numerous other state laws. On July 19, 2002 - having failed to appear in court - the judge ruled against him. Mr.

Smith is a spammer.

Brightmail, a vendor of e-mail filters and anti-spam applications warned that close to 5 million spam "attacks" or "bursts" occurred in June 2002 and that spam has mushroomed 450 percent since June 2001. This pace continued unabated well into the beginning of 2004 when the introduction of spam filters began to take effect. PC World concurs.

Between one half and three quarters of all e-mail messages are spam or UCE (Unsolicited Commercial Email) - unsolicited and intrusive commercial ads, mostly concerned with sex, scams, get rich quick schemes, financial services and products, and health articles of dubious provenance. The messages are sent from spoofed or fake e-mail addresses. Some spammers hack into unsecured servers - mainly in China and Korea - to relay their missives anonymously.

Starting in 2003, malicious hackers began using spam to install malware - such as viruses, adware, spyware, and Trojans - on the unprotected personal computers of less savvy users. They thus transform these computers into "zombies", organize them into spam-spewing "bots" (networks), and sell access to them to criminals on penumbral boards and forums all over the Net.

Spam is an industry. Mass e-mailers maintain lists of e- mail addresses, often "harvested" by spamware bots - specialized computer applications - from Web sites. These lists are rented out or sold to marketers who use bulk mail services. They come cheap - c. $100 for 10 million addresses. Bulk mailers provide servers and bandwidth, charging c. $300 per million messages sent.

As spam recipients become more inured, ISPs less tolerant, and both more litigious - spammers multiply their efforts in order to maintain the same response rate. Spam works. It is not universally unwanted - which makes it tricky to outlaw. It elicits between 0.1 and 1 percent in positive follow ups, depending on the message. Many messages now include HTML, JavaScript, and ActiveX coding and thus resemble (or actually contain) viruses and Trojans.

Jupiter Media Matrix predicted in 2001 that the number of spam messages annually received by a typical Internet user will double to 1400 and spending on legitimate e- mail marketing will reach $9.4 billion by 2006 - compared to $1 billion in 2001. Forrester Research pegs the number at $4.8 billion in 2003.

More than 2.3-5 billion spam messages are sent daily. eMarketer puts the figures a lot lower at 76 billion messages in 2002. By 2006, daily spam output will soar to c. 15 billion missives, says Radicati Group. Jupiter projects a more modest 268 billion annual messages this year (2005). An average communication costs the spammer 0.00032 cents.

PC World quotes the European Union as pegging the bandwidth costs of spam worldwide in 2002 at $8-10 billion annually. Other damages include server crashes, time spent purging unwanted messages, lower productivity, aggravation, and increased cost of Internet access.

Inevitably, the spam industry gave rise to an anti-spam industry. According to a Radicati Group report titled "Anti-virus, anti-spam, and content filtering market trends 2002-2006", anti-spam revenues were projected to exceed $88 million in 2002 - and more than double by 2006. List blockers, report and complaint generators, advocacy groups, registers of known spammers, and spam filters all proliferate. The Wall Street Journal reported in its June 25, 2002 issue about a resurgence of anti-spam startups financed by eager venture capital.

ISPs are bent on preventing abuse - reported by victims - by expunging the accounts of spammers. But the latter simply switch ISPs or sign on with free services like Hotmail and Yahoo! Barriers to entry are getting lower by the day as the costs of hardware, software, and communications plummet.

The use of e-mail and broadband connections by the general population is spreading. Hundreds of thousands of technologically-savvy operators have joined the market in the last five years, as the dotcom bubble burst. Still, Steve Linford of the UK-based Spamhaus.org insists that most spam emanates from c. 80 large operators.

Now, according to Jupiter Media, ISPs and portals are poised to begin to charge advertisers in a tier-based system, replete with premium services. Writing back in 1998, Bill Gates described a solution also espoused by Esther Dyson, chair of the Electronic Frontier Foundation: "As I first described in my book 'The Road Ahead' in 1995, I expect that eventually you'll be paid to read unsolicited e-mail. You'll tell your e-mail program to discard all unsolicited messages that don't offer an amount of money that you'll choose. If you open a paid message and discover it's from a long-lost friend or somebody else who has a legitimate reason to contact you, you'll be able to cancel the payment. Otherwise, you'll be paid for your time".

Subscribers may not be appreciative of the joint ventures between gatekeepers and inbox clutterers. Moreover, dominant ISPs, such as AT&T and PSINet have recurrently been accused of knowingly collaborating with spammers. ISPs rely on the data traffic that spam generates for their revenues in an ever-harsher business environment.

The Financial Times and others described how WorldCom refuses to ban the sale of spamware over its network, claiming that it does not regulate content. When "pink" (the color of canned spam) contracts came to light, the implicated ISPs blame the whole affair on rogue employees.

PC World begs to differ: "Ronnie Scelson, a self-described spammer who signed such a contract with PSInet, (says) that backbone providers are more than happy to do business with bulk e-mailers. 'I've signed up with the biggest 50 carriers two or three times', says Scelson ... The Louisiana-based spammer claims to send 84 million commercial e-mail messages a day over his three 45-megabit-per-second DS3 circuits. 'If you were getting $40,000 a month for each circuit', Scelson asks, 'would you want to shut me down?'" The line between permission-based or "opt-in" e-mail marketing and spam is getting thinner by the day. Some list resellers guarantee the consensual nature of their wares. According to the Direct Marketing Association's guidelines, quoted by PC World, not responding to an unsolicited e-mail amounts to "opting-in" - a marketing strategy known as "opting out". Most experts, though, strongly urge spam victims not to respond to spammers, lest their e-mail address is confirmed.

But spam is crossing technological boundaries. Japan has just legislated against wireless SMS spam targeted at hapless mobile phone users. Many states in the USA as well as the European parliament have followed suit. Ideas regarding a "do not spam" list akin to the "do not call" list in telemarketing have been floated. Mobile phone users will place their phone numbers on the list to avoid receiving UCE (spam). Email subscribers enjoy the benefits of a similar list under the CAN-Spam Act of 2003.

Expensive and slow connections make mobile phone spam and spim (instant messaging spam) particularly resented. Still, according to Britain's Mobile Channel, a mobile advertising company quoted by "The Economist", SMS advertising - a novelty - attracts a 10-20 percent response rate - compared to direct mail's 1-3 percent.

Net identification systems - like Microsoft's Passport and the one proposed by Liberty Alliance - will make it even easier for marketers to target prospects.

The reaction to spam can be described only as mass hysteria. Reporting someone as a spammer - even when he is not - has become a favorite pastime of vengeful, self- appointed, vigilante "cyber-cops". Perfectly legitimate, opt-in, email marketing businesses and discussion forums often find themselves in one or more black lists - their reputation and business ruined.

In January 2002, CMGI-owned Yesmail was awarded a temporary restraining order against MAPS - Mail Abuse Prevention System - forbidding it to place the reputable e- mail marketer on its Real-time Blackhole list. The case was settled out of court.

Harris Interactive, a large online opinion polling company, sued not only MAPS, but ISPs who blocked its email messages when it found itself included in MAPS' Blackhole. Their CEO accused one of their competitors for the allegations that led to Harris' inclusion in the list.

Coupled with other pernicious phenomena - such as viruses, Trojans, and spyware - the very foundation of the Internet as a fun, relatively safe, mode of communication and data acquisition is at stake.

Spammers, it emerges, have their own organizations.

NOIC - the National Organization of Internet Commerce threatened to post to its Web site the e-mail addresses of millions of AOL members. AOL has aggressive anti- spamming policies. "AOL is blocking bulk email because it wants the advertising revenues for itself (by selling pop- up ads)" the president of NOIC, Damien Melle, complained to CNET.

Spam is a classic "free rider" problem. For any given individual, the cost of blocking a spammer far outweighs the benefits. It is cheaper and easier to hit the "delete" key. Individuals, therefore, prefer to let others do the job and enjoy the outcome - the public good of a spam-free Internet. They cannot be left out of the benefits of such an aftermath - public goods are, by definition, "non- excludable". Nor is a public good diminished by a growing number of "non-rival" users.

Such a situation resembles a market failure and requires government intervention through legislation and enforcement. The FTC - the US Federal Trade Commission - has taken legal action against more than 100 spammers for promoting scams and fraudulent goods and services. "Project Mailbox" is an anti-spam collaboration between American law enforcement agencies and the private sector. Non government organizations have entered the fray, as have lobbying groups, such as CAUCE - the Coalition Against Unsolicited Commercial E-mail.

But, a few recent anti-spam and anti-spyware Acts notwithstanding, Congress is curiously reluctant to enact stringent laws against spam. Reasons cited are free speech, limits on state powers to regulate commerce, avoiding unfair restrictions on trade, and the interests of small business. The courts equivocate as well. In some cases - e.g., Missouri vs. American Blast Fax - US courts found "that the provision prohibiting the sending of unsolicited advertisements is unconstitutional".

According to Spamlaws.com, the 107th Congress, for instance, discussed these laws but never enacted them: Unsolicited Commercial Electronic Mail Act of 2001 (H.R. 95), Wireless Telephone Spam Protection Act (H.R. 113), Anti-Spamming Act of 2001 (H.R. 718), Anti- Spamming Act of 2001 (H.R. 1017), Who Is E-Mailing Our Kids Act (H.R. 1846), Protect Children From E-Mail Smut Act of 2001 (H.R. 2472), Netizens Protection Act of 2001 (H.R. 3146), "CAN SPAM" Act of 2001 (S. 630).

Anti-spam laws fared no better in the 106th Congress.

Some of the states have picked up the slack. Arkansas, California, Colorado, Connecticut, Delaware, Idaho, Illinois, Iowa, Kansas, Louisiana, Maryland, Minnesota, Missouri, Nevada, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Virginia, Washington, West Virginia, and Wisconsin.

The situation is no better across the pond. The European parliament decided in 2001 to allow each member country to enact its own spam laws, thus avoiding a continent- wide directive and directly confronting the communications ministers of the union. Paradoxically, it also decided, in March 2002, to restrict SMS spam.

Confusion clearly reigns. Finally, in May 2002, it adopted strong anti-spam provisions as part of a Directive on Data Protection.

Responding to this unfavorable legal environment, spam is relocating to developing countries, such as Malaysia, Nepal, and Nigeria. In a May 2005 report, the OECD (Organization for Economic Cooperation and Development) warned that these countries lack the technical know-how and financial resources (let alone the will) to combat spam. Their users, anyhow deprived of bandwidth, endure, as a result, a less reliable service and an intermittent access to the Internet; "Spam is a much more serious issue in developing countries...as it is a heavy drain on resources that are scarcer and costlier in developing countries than elsewhere" - writes the report's author, Suresh Ramasubramanian, an OECD advisor and postmaster for Outblaze.com.

ISPs, spam monitoring services, and governments in the rich industrialized world react by placing entire countries - such as Macedonia and Costa Rica - on black lists and, thus denying access to their users en bloc.

International collaboration against the looming destruction of the Internet by crime organizations is budding. The FTC had just announced that it will work with its counterparts abroad to cut zombie computers off the network. A welcome step - but about three years late.

Spammers the world over are still six steps ahead and are having the upper hand.

The Content Downloader's Profile Interview granted to Tim Emmerling, a student at Eastern Illinois University.

Q. What do you know about people illegally downloading files over the internet? A. I know what everyone knows from being exposed to the news media and to lawsuits filed by publishers: the phenomenon is widespread and most of the millions of exchanged files are music tracks and films (though book rip-offs are not unknown as well).

Q. Why do you think people are taking part in these electronic transactions? Does the cost of purchasing the media come into play? A. It's a complex canvass of motivations, I guess. Many media products (especially in developing and poor countries) are overpriced in terms of the local purchasing power. Illegally downloading them is often an act of protest or defiance against what disgruntled consumers perceive as excessive profiteering. It may also be the only realistic way to gain ownership of coveted content.

The fact that everything - from text to images - is digital makes replication facile and enticing. Illegal downloading also probably confers an aura of daring and mystique on the "pirates" involved (whose life may otherwise be a lot drearier and mundane).

Additionally, these products resemble public goods in that they are nonrivalrous (the cost of extending the service or providing the good to another person is (close to) zero) and largely nonexcludable.

Most products are rivalrous (scarce) - zero sum games.

Having been consumed, they are gone and are not available to others. Public goods, in contrast, are accessible to growing numbers of people without any additional marginal cost. This wide dispersion of benefits renders them unsuitable for private entrepreneurship. It is impossible to recapture the full returns they engender. As Samuelson observed, they are extreme forms of positive externalities (spillover effects).

Moreover, it is impossible to exclude anyone from enjoying the benefits of a public good, or from defraying its costs (positive and negative externalities). Neither can anyone willingly exclude himself from their remit.

Needless to emphasize that media products are not public goods at all! They only superficially resemble public goods. Still, the fact that many books, music, and some films are, indeed, in the public domain further exacerbates the consumer's confusion. "Why can I (legally) download certain books and music tracks free of charge - but not others?" - wonders the baffled surfer, who is rarely versed in the intricacies of copyright laws.

Q. Do you think this leads to a feeling of disrespect toward the various pieces of media by the person that steals it so frequently? (If I download music all the time, will I lose interest in it?)

A. I am not sure that the word "respect" is relevant here.

People don't respect or disrespect music - they enjoy it, like it, or dislike it. But frequent illegal downloading of media products is, probably, the outcome of disrespect towards content intermediaries such as publishers, producers, and retail outlets. I don't know for sure because there is no research to guide us in this matter, but I would imagine that these people (wrongly) perceive content intermediaries as parasitic and avaricious.

Q. Downloading is still a widespread act today. The threats of lawsuits and legal action against downloaders hasn't stopped the problem. What, in your opinion, needs to be done to stop this behavior?

A. Law enforcement activities and lawsuits are already having an effect. But you cannot prosecute thousands of people on a regular basis without suffering a commensurate drop in popularity and a tarnished image.

People do not perceive these acts as self-defense but as David vs. Goliath bullying. Sooner or later, the efficacy of such measures is bound to decline.

Media companies would do better to adopt new technologies rather than fight them. They must come forth with new business models and new venues of dissemination of content. They have to show more generosity in the management of digital rights. They have to adopt differential pricing of their products across the board, to reflect disparities in earnings and purchasing power in the global marketplace. They have to transform themselves rather than try to coerce the world into their antiquated and Procrustean ways of doing things.

Q. Psychologically speaking, is there a certain kind of person who is more likely to take part in this behavior? Do you feel that this is a generational issue?

A. I cannot but speculate. There is a dearth of data at this early stage. I would imagine that illegal downloaders are hoarders. They are into owning things rather than into using or consuming them. They are into building libraries and collections. They are young and intelligent, but not affluent. They are irreverent, rebellious, and non- conformist. They may be loners who network socially only online. Some of them love culture and its artifacts but they need not be particularly computer-savvy.

XXXVII. The Fabric of Economic Trust

Economics acquired its dismal reputation by pretending to be an exact science rather than a branch of mass psychology. In truth it is a narrative struggling to describe the aggregate behavior of humans. It seeks to cloak its uncertainties and shifting fashions with mathematical formulae and elaborate econometric computerized models.

So much is certain, though - that people operate within markets, free or regulated, patchy or organized. They attach numerical (and emotional) values to their inputs (work, capital) and to their possessions (assets, natural endowments). They communicate these values to each other by sending out signals known as prices.

Yet, this entire edifice - the market and its price mechanism - critically depends on trust. If people do not trust each other, or the economic "envelope" within which they interact - economic activity gradually grinds to a halt.

There is a strong correlation between the general level of trust and the extent and intensity of economic activity.

Francis Fukuyama, the political scientist, distinguishes between high-trust and prosperous societies and low-trust and, therefore, impoverished collectives. Trust underlies economic success, he argued in a 1995 tome.

Trust is not a monolithic quantity. There are a few categories of economic trust. Some forms of trust are akin to a public good and are closely related to governmental action or inaction, the reputation of the state and its institutions, and its pronounced agenda. Other types of trust are the outcomes of kinship, ethnic origin, personal standing and goodwill, corporate brands and other data generated by individuals, households, and firms.

I. Trust in the playing field To transact, people have to maintain faith in a relevant economic horizon and in the immutability of the economic playing field or "envelope". Put less obscurely, a few hidden assumptions underlie the continued economic activity of market players.

They assume, for instance, that the market will continue to exist for the foreseeable future in its current form. That it will remain inert - unhindered by externalities like government intervention, geopolitical upheavals, crises, abrupt changes in accounting policies and tax laws, hyperinflation, institutional and structural reform and other market-deflecting events and processes.

They further assume that their price signals will not be distorted or thwarted on a consistent basis thus skewing the efficient and rational allocation of risks and rewards.

Insider trading, stock manipulation, monopolies, hoarding - all tend to consistently but unpredictably distort price signals and, thus, deter market participation.

Market players take for granted the existence and continuous operation of institutions - financial intermediaries, law enforcement agencies, courts. It is important to note that market players prefer continuity and certainty to evolution, however gradual and ultimately beneficial. A venal bureaucrat is a known quantity and can be tackled effectively. A period of transition to good and equitable governance can be more stifling than any level of corruption and malfeasance. This is why economic activity drops sharply whenever institutions are reformed.

II. Trust in other players Market players assume that other players are (generally) rational, that they have intentions, that they intend to maximize their benefits and that they are likely to act on their intentions in a legal (or rule-based), rational manner.

III. Trust in market liquidity Market players assume that other players possess or have access to the liquid means they need in order to act on their intentions and obligations. They know, from personal experience, that idle capital tends to dwindle and that the only way to, perhaps, maintain or increase it is to transact with others, directly or through intermediaries, such as banks.

IV. Trust in others' knowledge and ability Market players assume that other players possess or have access to the intellectual property, technology, and knowledge they need in order to realize their intentions and obligations. This implicitly presupposes that all other market players are physically, mentally, legally and financially able and willing to act their parts as stipulated, for instance, in contracts they sign.

The emotional dimensions of contracting are often neglected in economics. Players assume that their counterparts maintain a realistic and stable sense of self- worth based on intimate knowledge of their own strengths and weaknesses. Market participants are presumed to harbor realistic expectations, commensurate with their skills and accomplishments. Allowance is made for exaggeration, disinformation, even outright deception - but these are supposed to be marginal phenomena.

When trust breaks down - often the result of an external or internal systemic shock - people react expectedly. The number of voluntary interactions and transactions decreases sharply. With a collapsed investment horizon, individuals and firms become corrupt in an effort to shortcut their way into economic benefits, not knowing how long will the system survive. Criminal activity increases.

People compensate with fantasies and grandiose delusions for their growing sense of uncertainty, helplessness, and fears. This is a self-reinforcing mechanism, a vicious cycle which results in under-confidence and a fluctuating self esteem. They develop psychological defence mechanisms.

Cognitive dissonance ("I really choose to be poor rather than heartless"), pathological envy (seeks to deprive others and thus gain emotional reward), rigidity ("I am like that, my family or ethnic group has been like that for generations, there is nothing I can do"), passive- aggressive behavior (obstructing the work flow, absenteeism, stealing from the employer, adhering strictly to arcane regulations) - are all reactions to a breakdown in one or more of the four aforementioned types of trust.

Furthermore, people in a trust crisis are unable to postpone gratification. They often become frustrated, aggressive, and deceitful if denied. They resort to reckless behavior and stopgap economic activities.

In economic environments with compromised and impaired trust, loyalty decreases and mobility increases.

People switch jobs, renege on obligations, fail to repay debts, relocate often. Concepts like exclusivity, the sanctity of contracts, workplace loyalty, or a career path - all get eroded. As a result, little is invested in the future, in the acquisition of skills, in long term savings. Short- termism and bottom line mentality rule.

The outcomes of a crisis of trust are, usually, catastrophic: Economic activity is much reduced, human capital is corroded and wasted, brain drain increases, illegal and extra-legal activities rise, society is polarized between haves and haves-not, interethnic and inter-racial tensions increase. To rebuild trust in such circumstances is a daunting task. The loss of trust is contagious and, finally, it infects every institution and profession in the land. It is the stuff revolutions are made of.

XXXVIII. The Distributive Justice of the Market

The public outcry against executive pay and compensation followed disclosures of insider trading, double dealing, and outright fraud. But even honest and productive entrepreneurs often earn more money in one year than Albert Einstein did in his entire life. This strikes many - especially academics - as unfair. Surely Einstein's contributions to human knowledge and welfare far exceed anything ever accomplished by sundry businessmen? Fortunately, this discrepancy is cause for constructive jealousy, emulation, and imitation. It can, however, lead to an orgy of destructive and self-ruinous envy.

Such envy is reinforced by declining social mobility in the United States. Recent (2006-7) studies by the OECD (Organization for Economic Cooperation and Development) clearly demonstrate that the American Dream is a myth. In an editorial dated July 13, 2007, the New-York Times described the rapidly deteriorating situation thus: "... (M)obility between generations - people doing better or worse than their parents - is weaker in America than in Denmark, Austria, Norway, Finland, Canada, Sweden, Germany, Spain and France. In America, there is more than a 40 percent chance that if a father is in the bottom fifth of the earnings' distribution, his son will end up there, too. In Denmark, the equivalent odds are under 25 percent, and they are less than 30 percent in Britain.

America's sluggish mobility is ultimately unsurprising.

Wealthy parents not only pass on that wealth in inheritances, they can pay for better education, nutrition and health care for their children. The poor cannot afford this investment in their children's development - and the government doesn't provide nearly enough help.

In a speech earlier this year, the Federal Reserve chairman, Ben Bernanke, argued that while the inequality of rewards fuels the economy by making people exert themselves, opportunity should be "as widely distributed and as equal as possible." The problem is that the have-nots don't have many opportunities either".

Still, entrepreneurs recombine natural and human resources in novel ways. They do so to respond to forecasts of future needs, or to observations of failures and shortcomings of current products or services.

Entrepreneurs are professional - though usually intuitive - futurologists. This is a valuable service and it is financed by systematic risk takers, such as venture capitalists.

Surely they all deserve compensation for their efforts and the hazards they assume? Exclusive ownership is the most ancient type of such remuneration. First movers, entrepreneurs, risk takers, owners of the wealth they generated, exploiters of resources - are allowed to exclude others from owning or exploiting the same things. Mineral concessions, patents, copyright, trademarks - are all forms of monopoly ownership. What moral right to exclude others is gained from being the first? Nozick advanced Locke's Proviso. An exclusive ownership of property is just only if "enough and as good is left in common for others". If it does not worsen other people's lot, exclusivity is morally permissible. It can be argued, though, that all modes of exclusive ownership aggravate other people's situation. As far as everyone, bar the entrepreneur, are concerned, exclusivity also prevents a more advantageous distribution of income and wealth.

Exclusive ownership reflects real-life irreversibility. A first mover has the advantage of excess information and of irreversibly invested work, time, and effort. Economic enterprise is subject to information asymmetry: we know nothing about the future and everything about the past.

This asymmetry is known as "investment risk". Society compensates the entrepreneur with one type of asymmetry - exclusive ownership - for assuming another, the investment risk.

One way of looking at it is that all others are worse off by the amount of profits and rents accruing to owner- entrepreneurs. Profits and rents reflect an intrinsic inefficiency. Another is to recall that ownership is the result of adding value to the world. It is only reasonable to expect it to yield to the entrepreneur at least this value added now and in the future.

In a "Theory of Justice" (published 1971, p. 302), John Rawls described an ideal society thus: "(1) Each person is to have an equal right to the most extensive total system of equal basic liberties compatible with a similar system of liberty for all. (2) Social and economic inequalities are to be arranged so that they are both: (a) to the greatest benefit of the least advantaged, consistent with the just savings principle, and (b) attached to offices and positions open to all under conditions of fair equality of opportunity".

It all harks back to scarcity of resources - land, money, raw materials, manpower, creative brains. Those who can afford to do so, hoard resources to offset anxiety regarding future uncertainty. Others wallow in paucity.

The distribution of means is thus skewed. "Distributive justice" deals with the just allocation of scarce resources.

Yet, even the basic terminology is somewhat fuzzy. What constitutes a resource? what is meant by allocation? Who should allocate resources - Adam Smith's "invisible hand", the government, the consumer, or business? Should it reflect differences in power, in intelligence, in knowledge, or in heredity? Should resource allocation be subject to a principle of entitlement? Is it reasonable to demand that it be just - or merely efficient? Are justice and efficiency antonyms? Justice is concerned with equal access to opportunities.

Equal access does not guarantee equal outcomes, invariably determined by idiosyncrasies and differences between people. Access leveraged by the application of natural or acquired capacities - translates into accrued wealth. Disparities in these capacities lead to discrepancies in accrued wealth.

The doctrine of equal access is founded on the equivalence of Men. That all men are created equal and deserve the same respect and, therefore, equal treatment is not self evident. European aristocracy well into this century would have probably found this notion abhorrent.

Jose Ortega Y Gasset, writing in the 1930's, preached that access to educational and economic opportunities should be premised on one's lineage, up bringing, wealth, and social responsibilities.

A succession of societies and cultures discriminated against the ignorant, criminals, atheists, females, homosexuals, members of ethnic, religious, or racial groups, the old, the immigrant, and the poor. Communism - ostensibly a strict egalitarian idea - foundered because it failed to reconcile strict equality with economic and psychological realities within an impatient timetable.

Philosophers tried to specify a "bundle" or "package" of goods, services, and intangibles (like information, or skills, or knowledge). Justice - though not necessarily happiness - is when everyone possesses an identical bundle. Happiness - though not necessarily justice - is when each one of us possesses a "bundle" which reflects his or her preferences, priorities, and predilections. None of us will be too happy with a standardized bundle, selected by a committee of philosophers - or bureaucrats, as was the case under communism.

The market allows for the exchange of goods and services between holders of identical bundles. If I seek books, but detest oranges - I can swap them with someone in return for his books. That way both of us are rendered better off than under the strict egalitarian version.

Still, there is no guarantee that I will find my exact match - a person who is interested in swapping his books for my oranges. Illiquid, small, or imperfect markets thus inhibit the scope of these exchanges. Additionally, exchange participants have to agree on an index: how many books for how many oranges? This is the price of oranges in terms of books.

Money - the obvious "index" - does not solve this problem, merely simplifies it and facilitates exchanges. It does not eliminate the necessity to negotiate an "exchange rate". It does not prevent market failures. In other words: money is not an index. It is merely a medium of exchange and a store of value. The index - as expressed in terms of money - is the underlying agreement regarding the values of resources in terms of other resources (i.e., their relative values).

The market - and the price mechanism - increase happiness and welfare by allowing people to alter the composition of their bundles. The invisible hand is just and benevolent. But money is imperfect. The aforementioned Rawles demonstrated (1971), that we need to combine money with other measures in order to place a value on intangibles.

The prevailing market theories postulate that everyone has the same resources at some initial point (the "starting gate"). It is up to them to deploy these endowments and, thus, to ravage or increase their wealth. While the initial distribution is equal - the end distribution depends on how wisely - or imprudently - the initial distribution was used.

Egalitarian thinkers proposed to equate everyone's income in each time frame (e.g., annually). But identical incomes do not automatically yield the same accrued wealth. The latter depends on how the income is used - saved, invested, or squandered. Relative disparities of wealth are bound to emerge, regardless of the nature of income distribution.

Some say that excess wealth should be confiscated and redistributed. Progressive taxation and the welfare state aim to secure this outcome. Redistributive mechanisms reset the "wealth clock" periodically (at the end of every month, or fiscal year). In many countries, the law dictates which portion of one's income must be saved and, by implication, how much can be consumed. This conflicts with basic rights like the freedom to make economic choices.

The legalized expropriation of income (i.e., taxes) is morally dubious. Anti-tax movements have sprung all over the world and their philosophy permeates the ideology of political parties in many countries, not least the USA. Taxes are punitive: they penalize enterprise, success, entrepreneurship, foresight, and risk assumption.

Welfare, on the other hand, rewards dependence and parasitism.

According to Rawles' Difference Principle, all tenets of justice are either redistributive or retributive. This ignores non-economic activities and human inherent variance.

Moreover, conflict and inequality are the engines of growth and innovation - which mostly benefit the least advantaged in the long run. Experience shows that unmitigated equality results in atrophy, corruption and stagnation. Thermodynamics teaches us that life and motion are engendered by an irregular distribution of energy. Entropy - an even distribution of energy - equals death and stasis.

What about the disadvantaged and challenged - the mentally retarded, the mentally insane, the paralyzed, the chronically ill? For that matter, what about the less talented, less skilled, less daring? Dworkin (1981) proposed a compensation scheme. He suggested a model of fair distribution in which every person is given the same purchasing power and uses it to bid, in a fair auction, for resources that best fit that person's life plan, goals and preferences.

Having thus acquired these resources, we are then permitted to use them as we see fit. Obviously, we end up with disparate economic results. But we cannot complain - we were given the same purchasing power and the freedom to bid for a bundle of our choice.

Dworkin assumes that prior to the hypothetical auction, people are unaware of their own natural endowments but are willing and able to insure against being naturally disadvantaged. Their payments create an insurance pool to compensate the less fortunate for their misfortune.

This, of course, is highly unrealistic. We are usually very much aware of natural endowments and liabilities - both ours and others'. Therefore, the demand for such insurance is not universal, nor uniform. Some of us badly need and want it - others not at all. It is morally acceptable to let willing buyers and sellers to trade in such coverage (e.g., by offering charity or alms) - but may be immoral to make it compulsory.

Most of the modern welfare programs are involuntary Dworkin schemes. Worse yet, they often measure differences in natural endowments arbitrarily, compensate for lack of acquired skills, and discriminate between types of endowments in accordance with cultural biases and fads.

Libertarians limit themselves to ensuring a level playing field of just exchanges, where just actions always result in just outcomes. Justice is not dependent on a particular distribution pattern, whether as a starting point, or as an outcome. Robert Nozick "Entitlement Theory" proposed in 1974 is based on this approach.

That the market is wiser than any of its participants is a pillar of the philosophy of capitalism. In its pure form, the theory claims that markets yield patterns of merited distribution - i.e., reward and punish justly. Capitalism generate just deserts. Market failures - for instance, in the provision of public goods - should be tackled by governments. But a just distribution of income and wealth does not constitute a market failure and, therefore, should not be tampered with.

XXXIX. The Agent-Principal Conundrum

In the catechism of capitalism, shares represent the part- ownership of an economic enterprise, usually a firm. The value of shares is determined by the replacement value of the assets of the firm, including intangibles such as goodwill. The price of the share is determined by transactions among arm's length buyers and sellers in an efficient and liquid market. The price reflects expectations regarding the future value of the firm and the stock's future stream of income - i.e., dividends.

Alas, none of these oft-recited dogmas bears any resemblance to reality. Shares rarely represent ownership.

The float - the number of shares available to the public - is frequently marginal. Shareholders meet once a year to vent and disperse. Boards of directors are appointed by management - as are auditors. Shareholders are not represented in any decision making process - small or big.

The dismal truth is that shares reify the expectation to find future buyers at a higher price and thus incur capital gains.

In the Ponzi scheme known as the stock exchange, this expectation is proportional to liquidity - new suckers - and volatility. Thus, the price of any given stock reflects merely the consensus as to how easy it would be to offload one's holdings and at what price.

Another myth has to do with the role of managers. They are supposed to generate higher returns to shareholders by increasing the value of the firm's assets and, therefore, of the firm. If they fail to do so, goes the moral tale, they are booted out mercilessly. This is one manifestation of the "Principal-Agent Problem". It is defined thus by the Oxford Dictionary of Economics: "The problem of how a person A can motivate person B to act for A's benefit rather than following (his) self- interest".

The obvious answer is that A can never motivate B not to follow B's self-interest - never mind what the incentives are. That economists pretend otherwise - in "optimal contracting theory" - just serves to demonstrate how divorced economics is from human psychology and, thus, from reality.

Managers will always rob blind the companies they run.

They will always manipulate boards to collude in their shenanigans. They will always bribe auditors to bend the rules. In other words, they will always act in their self- interest. In their defense, they can say that the damage from such actions to each shareholder is minuscule while the benefits to the manager are enormous. In other words, this is the rational, self-interested, thing to do.

But why do shareholders cooperate with such corporate brigandage? In an important Chicago Law Review article whose preprint was posted to the Web a few weeks ago - titled "Managerial Power and Rent Extraction in the Design of Executive Compensation" - the authors demonstrate how the typical stock option granted to managers as part of their remuneration rewards mediocrity rather than encourages excellence.

But everything falls into place if we realize that shareholders and managers are allied against the firm - not pitted against each other. The paramount interest of both shareholders and managers is to increase the value of the stock - regardless of the true value of the firm. Both are concerned with the performance of the share - rather than the performance of the firm. Both are preoccupied with boosting the share's price - rather than the company's business.

Hence the inflationary executive pay packets.

Shareholders hire stock manipulators - euphemistically known as "managers" - to generate expectations regarding the future prices of their shares. These snake oil salesmen and snake charmers - the corporate executives - are allowed by shareholders to loot the company providing they generate consistent capital gains to their masters by provoking persistent interest and excitement around the business. Shareholders, in other words, do not behave as owners of the firm - they behave as free-riders.

The Principal-Agent Problem arises in other social interactions and is equally misunderstood there. Consider taxpayers and their government. Contrary to conservative lore, the former want the government to tax them providing they share in the spoils. They tolerate corruption in high places, cronyism, nepotism, inaptitude and worse - on condition that the government and the legislature redistribute the wealth they confiscate. Such redistribution often comes in the form of pork barrel projects and benefits to the middle-class.

This is why the tax burden and the government's share of GDP have been soaring inexorably with the consent of the citizenry. People adore government spending precisely because it is inefficient and distorts the proper allocation of economic resources. The vast majority of people are rent-seekers. Witness the mass demonstrations that erupt whenever governments try to slash expenditures, privatize, and eliminate their gaping deficits. This is one reason the IMF with its austerity measures is universally unpopular.

Employers and employees, producers and consumers - these are all instances of the Principal-Agent Problem.

Economists would do well to discard their models and go back to basics. They could start by asking: Why do shareholders acquiesce with executive malfeasance as long as share prices are rising? Why do citizens protest against a smaller government - even though it means lower taxes? Could it mean that the interests of shareholders and managers are identical? Does it imply that people prefer tax-and-spend governments and pork barrel politics to the Thatcherite alternative? Nothing happens by accident or by coercion. Shareholders aided and abetted the current crop of corporate executives enthusiastically. They knew well what was happening.

They may not have been aware of the exact nature and extent of the rot - but they witnessed approvingly the public relations antics, insider trading, stock option resetting , unwinding, and unloading, share price manipulation, opaque transactions, and outlandish pay packages. Investors remained mum throughout the corruption of corporate America. It is time for the hangover.

XL. The Green-Eyed Capitalist

Conservative sociologists self-servingly marvel at the peaceful proximity of abject poverty and ostentatious affluence in American - or, for that matter, Western - cities. Devastating riots do erupt, but these are reactions either to perceived social injustice (Los Angeles 1965) or to political oppression (Paris 1968). The French Revolution may have been the last time the urban sans- culotte raised a fuss against the economically enfranchised.

This pacific co-existence conceals a maelstrom of envy.

Behold the rampant Schadenfreude which accompanied the antitrust case against the predatory but loaded Microsoft. Observe the glee which engulfed many destitute countries in the wake of the September 11 atrocities against America, the epitome of triumphant prosperity. Witness the post-World.com orgiastic castigation of avaricious CEO's.

Envy - a pathological manifestation of destructive aggressiveness - is distinct from jealousy.

The New Oxford Dictionary of English defines envy as: "A feeling of discontented or resentful longing aroused by someone else's possessions, qualities, or luck ...

Mortification and ill-will occasioned by the contemplation of another's superior advantages".

Pathological envy - the fourth deadly sin - is engendered by the realization of some lack, deficiency, or inadequacy in oneself. The envious begrudge others their success, brilliance, happiness, beauty, good fortune, or wealth.

Envy provokes misery, humiliation, and impotent rage.

The envious copes with his pernicious emotions in five ways: 1. They attack the perceived source of frustration in an attempt to destroy it, or "reduce it" to their "size". Such destructive impulses often assume the disguise of championing social causes, fighting injustice, touting reform, or promoting an ideology. 2. They seek to subsume the object of envy by imitating it. In extreme cases, they strive to get rich quick through criminal scams, or corruption.

They endeavor to out-smart the system and shortcut their way to fortune and celebrity. 3. They resort to self-deprecation. They idealize the successful, the rich, the mighty, and the lucky and attribute to them super-human, almost divine, qualities. At the same time, they humble themselves. Indeed, most of this strain of the envious end up disenchanted and bitter, driving the objects of their own erstwhile devotion and adulation to destruction and decrepitude. 4. They experience cognitive dissonance. These people devalue the source of their frustration and envy by finding faults in everything they most desire and in everyone they envy. 5. They avoid the envied person and thus the agonizing pangs of envy.

Envy is not a new phenomenon. Belisarius, the general who conquered the world for Emperor Justinian, was blinded and stripped of his assets by his envious peers. I - and many others - have written extensively about envy in command economies. Nor is envy likely to diminish.

In his book, "Facial Justice", Hartley describes a post- apocalyptic dystopia, New State, in which envy is forbidden and equality extolled and everything enviable is obliterated. Women are modified to look like men and given identical "beta faces". Tall buildings are razed.

Joseph Schumpeter, the prophetic Austrian-American economist, believed that socialism will disinherit capitalism. In "Capitalism, Socialism, and Democracy" he foresaw a conflict between a class of refined but dirt-poor intellectuals and the vulgar but filthy rich businessmen and managers they virulently envy and resent. Samuel Johnson wrote: "He was dull in a new way, and that made many people think him great." The literati seek to tear down the market economy which they feel has so disenfranchised and undervalued them.

Hitler, who fancied himself an artist, labeled the British a "nation of shopkeepers" in one of his bouts of raging envy. Ralph Reiland, the Kenneth Simon professor of free enterprise at Robert Morris University, quotes David Brooks of the "weekly Standard", who christened this phenomenon "bourgeoisophobia": "The hatred of the bourgeoisie is the beginning of all virtue' - wrote Gustav Flaubert. He signed his letters 'Bourgeoisophobus' to show how much he despised 'stupid grocers and their ilk ... Through some screw-up in the great scheme of the universe, their narrow-minded greed had brought them vast wealth, unstoppable power and growing social prestige".

Reiland also quotes from Ludwig van Mises's "The Anti- Capitalist Mentality": "Many people, and especially intellectuals, passionately loathe capitalism. In a society based on caste and status, the individual can ascribe adverse fate to conditions beyond his control. In ... capitalism ... everybody's station in life depends on his doing ... (what makes a man rich is) not the evaluation of his contribution from any 'absolute' principle of justice but the evaluation on the part of his fellow men who exclusively apply the yardstick of their personal wants, desires and ends ... Everybody knows very well that there are people like himself who succeeded where he himself failed. Everybody knows that many of those he envies are self-made men who started from the same point from which he himself started. Everybody is aware of his own defeat. In order to console himself and to restore his self- assertion, such a man is in search of a scapegoat. He tries to persuade himself that he failed through no fault of his own. He was too decent to resort to the base tricks to which his successful rivals owe their ascendancy. The nefarious social order does not accord the prizes to the most meritorious men; it crowns the dishonest, unscrupulous scoundrel, the swindler, the exploiter, the 'rugged individualist'".

In "The Virtue of Prosperity", Dinesh D'Souza accuses prosperity and capitalism of inspiring vice and temptation.

Inevitably, it provokes envy in the poor and depravity in the rich.

With only a modicum of overstatement, capitalism can be depicted as the sublimation of jealousy. As opposed to destructive envy - jealousy induces emulation. Consumers - responsible for two thirds of America's GDP - ape role models and vie with neighbors, colleagues, and family members for possessions and the social status they endow.

Productive and constructive competition - among scientists, innovators, managers, actors, lawyers, politicians, and the members of just about every other profession - is driven by jealousy.

The eminent Nobel prize winning British economist and philosopher of Austrian descent, Friedrich Hayek, suggested in "The Constitution of Liberty" that innovation and progress in living standards are the outcomes of class envy. The wealthy are early adopters of expensive and unproven technologies. The rich finance with their conspicuous consumption the research and development phase of new products. The poor, driven by jealousy, imitate them and thus create a mass market which allows manufacturers to lower prices.

But jealousy is premised on the twin beliefs of equality and a level playing field. "I am as good, as skilled, and as talented as the object of my jealousy." - goes the subtext - "Given equal opportunities, equitable treatment, and a bit of luck, I can accomplish the same or more".

Jealousy is easily transformed to outrage when its presumptions - equality, honesty, and fairness - prove wrong. In a paper recently published by Harvard University's John M. Olin Center for Law and titled "Executive Compensation in America: Optimal Contracting or Extraction of Rents?", the authors argue that executive malfeasance is most effectively regulated by this "outrage constraint": "Directors (and non-executive directors) would be reluctant to approve, and executives would be hesitant to seek, compensation arrangements that might be viewed by observers as outrageous".

Notes on the Economics of Game Theory

Consider this: Could Western management techniques be successfully implemented in the countries of Central and Eastern Europe (CEE)? Granted, they have to be adapted, modified and cannot be imported in their entirety. But their crux, their inalienable nucleus - can this be transported and transplanted in CEE? Theory provides us with a positive answer. Human agents are the same everywhere and are mostly rational. Practice begs to differ. Basic concepts such as the money value of time or the moral and legal meaning of property are non existent.

The legal, political and economic environments are all unpredictable. As a result, economic players will prefer to maximize their utility immediately (steal from the workplace, for instance) - than to wait for longer term (potentially, larger) benefits. Warrants (stock options) convertible to the company's shares constitute a strong workplace incentive in the West (because there is an horizon and they increase the employee's welfare in the long term). Where the future is speculation - speculation withers. Stock options or a small stake in his firm, will only encourage the employee to blackmail the other shareholders by paralysing the firm, to abuse his new position and will be interpreted as immunity, conferred from above, from the consequences of illegal activities.

The very allocation of options or shares will be interpreted as a sign of weakness, dependence and need, to be exploited. Hierarchy is equated with slavery and employees will rather harm their long term interests than follow instructions or be subjected to criticism - never mind how constructive. The employees in CEE regard the corporate environment as a conflict zone, a zero sum game (in which the gains by some equal the losses to others). In the West, the employees participate in the increase in the firm's value. The difference between these attitudes is irreconcilable.

Now, let us consider this: An entrepreneur is a person who is gifted at identifying the unsatisfied needs of a market, at mobilizing and organizing the resources required to satisfy those needs and at defining a long-term strategy of development and marketing. As the enterprise grows, two processes combine to denude the entrepreneur of some of his initial functions. The firm has ever growing needs for capital: financial, human, assets and so on. Additionally, the company begins (or should begin) to interface and interact with older, better established firms. Thus, the company is forced to create its first management team: a general manager with the right doses of respectability, connections and skills, a chief financial officer, a host of consultants and so on. In theory - if all our properly motivated financially - all these players (entrepreneurs and managers) will seek to maximize the value of the firm. What happens, in reality, is that both work to minimize it, each for its own reasons. The managers seek to maximize their short-term utility by securing enormous pay packages and other forms of company-dilapidating compensation. The entrepreneurs feel that they are "strangled", "shackled", "held back" by bureaucracy and they "rebel". They oust the management, or undermine it, turning it into an ineffective representative relic. They assume real, though informal, control of the firm. They do so by defining a new set of strategic goals for the firm, which call for the institution of an entrepreneurial rather than a bureaucratic type of management. These cycles of initiative-consolidation-new initiative-revolution- consolidation are the dynamos of company growth.

Growth leads to maximization of value. However, the players don't know or do not fully believe that they are in the process of maximizing the company's worth. On the contrary, consciously, the managers say: "Let's maximize the benefits that we derive from this company, as long as we are still here." The entrepreneurs-owners say: "We cannot tolerate this stifling bureaucracy any longer. We prefer to have a smaller company - but all ours." The growth cycles forces the entrepreneurs to dilute their holdings (in order to raise the capital necessary to finance their initiatives). This dilution (the fracturing of the ownership structure) is what brings the last cycle to its end. The holdings of the entrepreneurs are too small to materialize a coup against the management. The management then prevails and the entrepreneurs are neutralized and move on to establish another start-up. The only thing that they leave behind them is their names and their heirs.

We can use Game Theory methods to analyse both these situations. Wherever we have economic players bargaining for the allocation of scarce resources in order to attain their utility functions, to secure the outcomes and consequences (the value, the preference, that the player attaches to his outcomes) which are right for them - we can use Game Theory (GT).

A short recap of the basic tenets of the theory might be in order.

GT deals with interactions between agents, whether conscious and intelligent - or Dennettic. A Dennettic Agent (DA) is an agent that acts so as to influence the future allocation of resources, but does not need to be either conscious or deliberative to do so. A Game is the set of acts committed by 1 to n rational DA and one a- rational (not irrational but devoid of rationality) DA (nature, a random mechanism). At least 1 DA in a Game must control the result of the set of acts and the DAs must be (at least potentially) at conflict, whole or partial. This is not to say that all the DAs aspire to the same things.

They have different priorities and preferences. They rank the likely outcomes of their acts differently. They engage Strategies to obtain their highest ranked outcome. A Strategy is a vector, which details the acts, with which the DA will react in response to all the (possible) acts by the other DAs. An agent is said to be rational if his Strategy does guarantee the attainment of his most preferred goal.

Nature is involved by assigning probabilities to the outcomes. An outcome, therefore, is an allocation of resources resulting from the acts of the agents. An agent is said to control the situation if its acts matter to others to the extent that at least one of them is forced to alter at least one vector (Strategy). The Consequence to the agent is the value of a function that assigns real numbers to each of the outcomes. The consequence represents a list of outcomes, prioritized, ranked. It is also known as an ordinal utility function. If the function includes relative numerical importance measures (not only real numbers) - we call it a Cardinal Utility Function.

Games, naturally, can consist of one player, two players and more than two players (n-players). They can be zero (or fixed) - sum (the sum of benefits is fixed and whatever gains made by one of the players are lost by the others).

They can be nonzero-sum (the amount of benefits to all players can increase or decrease). Games can be cooperative (where some of the players or all of them form coalitions) - or non-cooperative (competitive). For some of the games, the solutions are called Nash equilibria. They are sets of strategies constructed so that an agent which adopts them (and, as a result, secures a certain outcome) will have no incentive to switch over to other strategies (given the strategies of all other players).

Nash equilibria (solutions) are the most stable (it is where the system "settles down", to borrow from Chaos Theory) - but they are not guaranteed to be the most desirable.

Consider the famous "Prisoners' Dilemma" in which both players play rationally and reach the Nash equilibrium only to discover that they could have done much better by collaborating (that is, by playing irrationally). Instead, they adopt the "Paretto-dominated", or the "Paretto- optimal", sub-optimal solution. Any outside interference with the game (for instance, legislation) will be construed as creating a NEW game, not as pushing the players to adopt a "Paretto-superior" solution.

The behaviour of the players reveals to us their order of preferences. This is called "Preference Ordering" or "Revealed Preference Theory". Agents are faced with sets of possible states of the world (=allocations of resources, to be more economically inclined). These are called "Bundles". In certain cases they can trade their bundles, swap them with others. The evidence of these swaps will inevitably reveal to us the order of priorities of the agent.

All the bundles that enjoy the same ranking by a given agent - are this agent's "Indifference Sets". The construction of an Ordinal Utility Function is, thus, made simple. The indifference sets are numbered from 1 to n.

These ordinals do not reveal the INTENSITY or the RELATIVE INTENSITY of a preference - merely its location in a list. However, techniques are available to transform the ordinal utility function - into a cardinal one.

A Stable Strategy is similar to a Nash solution - though not identical mathematically. There is currently no comprehensive theory of Information Dynamics. Game Theory is limited to the aspects of competition and exchange of information (cooperation). Strategies that lead to better results (independently of other agents) are dominant and where all the agents have dominant strategies - a solution is established. Thus, the Nash equilibrium is applicable to games that are repeated and wherein each agent reacts to the acts of other agents. The agent is influenced by others - but does not influence them (he is negligible). The agent continues to adapt in this way - until no longer able to improve his position.

The Nash solution is less available in cases of cooperation and is not unique as a solution. In most cases, the players will adopt a minimax strategy (in zero-sum games) or maximin strategies (in nonzero-sum games). These strategies guarantee that the loser will not lose more than the value of the game and that the winner will gain at least this value. The solution is the "Saddle Point".

The distinction between zero-sum games (ZSG) and nonzero-sum games (NZSG) is not trivial. A player playing a ZSG cannot gain if prohibited to use certain strategies. This is not the case in NZSGs. In ZSG, the player does not benefit from exposing his strategy to his rival and is never harmed by having foreknowledge of his rival's strategy. Not so in NZSGs: at times, a player stands to gain by revealing his plans to the "enemy". A player can actually be harmed by NOT declaring his strategy or by gaining acquaintance with the enemy's stratagems. The very ability to communicate, the level of communication and the order of communication - are important in cooperative cases. A Nash solution: 1. Is not dependent upon any utility function; 2. It is impossible for two players to improve the Nash solution (=their position) simultaneously (=the Paretto optimality); 3. Is not influenced by the introduction of irrelevant (not very gainful) alternatives; and 4. Is symmetric (reversing the roles of the players does not affect the solution).

The limitations of this approach are immediately evident.

It is definitely not geared to cope well with more complex, multi-player, semi-cooperative (semi-competitive), imperfect information situations.

Von Neumann proved that there is a solution for every ZSG with 2 players, though it might require the implementation of mixed strategies (strategies with probabilities attached to every move and outcome).

Together with the economist Morgenstern, he developed an approach to coalitions (cooperative efforts of one or more players - a coalition of one player is possible).

Every coalition has a value - a minimal amount that the coalition can secure using solely its own efforts and resources. The function describing this value is super- additive (the value of a coalition which is comprised of two sub-coalitions equals, at least, the sum of the values of the two sub-coalitions). Coalitions can be epiphenomenal: their value can be higher than the combined values of their constituents. The amounts paid to the players equal the value of the coalition and each player stands to get an amount no smaller than any amount that he would have made on his own. A set of payments to the players, describing the division of the coalition's value amongst them, is the "imputation", a single outcome of a strategy. A strategy is, therefore, dominant, if: (1) each player is getting more under the strategy than under any other strategy and (2) the players in the coalition receive a total payment that does not exceed the value of the coalition. Rational players are likely to prefer the dominant strategy and to enforce it.

Thus, the solution to an n-players game is a set of imputations. No single imputation in the solution must be dominant (=better). They should all lead to equally desirable results. On the other hand, all the imputations outside the solution should be dominated. Some games are without solution (Lucas, 1967).

Auman and Maschler tried to establish what is the right payoff to the members of a coalition. They went about it by enlarging upon the concept of bargaining (threats, bluffs, offers and counter-offers). Every imputation was examined, separately, whether it belongs in the solution (=yields the highest ranked outcome) or not, regardless of the other imputations in the solution. But in their theory, every member had the right to "object" to the inclusion of other members in the coalition by suggesting a different, exclusionary, coalition in which the members stand to gain a larger payoff. The player about to be excluded can "counter-argue" by demonstrating the existence of yet another coalition in which the members will get at least as much as in the first coalition and in the coalition proposed by his adversary, the "objector". Each coalition has, at least, one solution.

The Game in GT is an idealized concept. Some of the assumptions can - and should be argued against. The number of agents in any game is assumed to be finite and a finite number of steps is mostly incorporated into the assumptions. Omissions are not treated as acts (though negative ones). All agents are negligible in their relationship to others (have no discernible influence on them) - yet are influenced by them (their strategies are not - but the specific moves that they select - are). The comparison of utilities is not the result of any ranking - because no universal ranking is possible. Actually, no ranking common to two or n players is possible (rankings are bound to differ among players). Many of the problems are linked to the variant of rationality used in GT. It is comprised of a clarity of preferences on behalf of the rational agent and relies on the people's tendency to converge and cluster around the right answer / move.

This, however, is only a tendency. Some of the time, players select the wrong moves. It would have been much wiser to assume that there are no pure strategies, that all of them are mixed. Game Theory would have done well to borrow mathematical techniques from quantum mechanics. For instance: strategies could have been described as wave functions with probability distributions.

The same treatment could be accorded to the cardinal utility function. Obviously, the highest ranking (smallest ordinal) preference should have had the biggest probability attached to it - or could be treated as the collapse event. But these are more or less known, even trivial, objections. Some of them cannot be overcome. We must idealize the world in order to be able to relate to it scientifically at all. The idealization process entails the incorporation of gross inaccuracies into the model and the ignorance of other elements. The surprise is that the approximation yields results, which tally closely with reality - in view of its mutilation, affected by the model.

There are more serious problems, philosophical in nature.

It is generally agreed that "changing" the game can - and very often does - move the players from a non- cooperative mode (leading to Paretto-dominated results, which are never desirable) - to a cooperative one. A government can force its citizens to cooperate and to obey the law. It can enforce this cooperation. This is often called a Hobbesian dilemma. It arises even in a population made up entirely of altruists. Different utility functions and the process of bargaining are likely to drive these good souls to threaten to become egoists unless other altruists adopt their utility function (their preferences, their bundles). Nash proved that there is an allocation of possible utility functions to these agents so that the equilibrium strategy for each one of them will be this kind of threat. This is a clear social Hobbesian dilemma: the equilibrium is absolute egoism despite the fact that all the players are altruists. This implies that we can learn very little about the outcomes of competitive situations from acquainting ourselves with the psychological facts pertaining to the players. The agents, in this example, are not selfish or irrational - and, still, they deteriorate in their behaviour, to utter egotism. A complete set of utility functions - including details regarding how much they know about one another's utility functions - defines the available equilibrium strategies. The altruists in our example are prisoners of the logic of the game. Only an "outside" power can release them from their predicament and permit them to materialize their true nature. Gauthier said that morally-constrained agents are more likely to evade Paretto-dominated outcomes in competitive games - than agents who are constrained only rationally. But this is unconvincing without the existence of an Hobesian enforcement mechanism (a state is the most common one). Players would do better to avoid Paretto dominated outcomes by imposing the constraints of such a mechanism upon their available strategies. Paretto optimality is defined as efficiency, when there is no state of things (a different distribution of resources) in which at least one player is better off - with all the other no worse off. "Better off" read: "with his preference satisfied". This definitely could lead to cooperation (to avoid a bad outcome) - but it cannot be shown to lead to the formation of morality, however basic. Criminals can achieve their goals in splendid cooperation and be content, but that does not make it more moral. Game theory is agent neutral, it is utilitarianism at its apex. It does not prescribe to the agent what is "good" - only what is "right". It is the ultimate proof that effort at reconciling utilitarianism with more deontological, agent relative, approaches are dubious, in the best of cases. Teleology, in other words, in no guarantee of morality.

Acts are either means to an end or ends in themselves.

This is no infinite regression. There is bound to be an holy grail (happiness?) in the role of the ultimate end. A more commonsense view would be to regard acts as means and states of affairs as ends. This, in turn, leads to a teleological outlook: acts are right or wrong in accordance with their effectiveness at securing the achievement of the right goals. Deontology (and its stronger version, absolutism) constrain the means. It states that there is a permitted subset of means, all the other being immoral and, in effect, forbidden. Game Theory is out to shatter both the notion of a finite chain of means and ends culminating in an ultimate end - and of the deontological view. It is consequentialist but devoid of any value judgement.

Game Theory pretends that human actions are breakable into much smaller "molecules" called games. Human acts within these games are means to achieving ends but the ends are improbable in their finality. The means are segments of "strategies": prescient and omniscient renditions of the possible moves of all the players. Aside from the fact that it involves mnemic causation (direct and deterministic influence by past events) and a similar influence by the utility function (which really pertains to the future) - it is highly implausible. Additionally, Game Theory is mired in an internal contradiction: on the one hand it solemnly teaches us that the psychology of the players is absolutely of no consequence. On the other, it hastens to explicitly and axiomatically postulate their rationality and implicitly (and no less axiomatically) their benefit-seeking behaviour (though this aspect is much more muted). This leads to absolutely outlandish results: irrational behaviour leads to total cooperation, bounded rationality leads to more realistic patterns of cooperation and competition (coopetition) and an unmitigated rational behaviour leads to disaster (also known as Paretto dominated outcomes).

Moreover, Game Theory refuses to acknowledge that real games are dynamic, not static. The very concepts of strategy, utility function and extensive (tree like) representation are static. The dynamic is retrospective, not prospective. To be dynamic, the game must include all the information about all the actors, all their strategies, all their utility functions. Each game is a subset of a higher level game, a private case of an implicit game which is constantly played in the background, so to say. This is a hyper-game of which all games are but derivatives. It incorporates all the physically possible moves of all the players. An outside agency with enforcement powers (the state, the police, the courts, the law) are introduced by the players. In this sense, they are not really an outside event which has the effect of altering the game fundamentally.

They are part and parcel of the strategies available to the players and cannot be arbitrarily ruled out. On the contrary, their introduction as part of a dominant strategy will simplify Game theory and make it much more applicable. In other words: players can choose to compete, to cooperate and to cooperate in the formation of an outside agency. There is no logical or mathematical reason to exclude the latter possibility. The ability to thus influence the game is a legitimate part of any real life strategy. Game Theory assumes that the game is a given - and the players have to optimize their results within it. It should open itself to the inclusion of game altering or redefining moves by the players as an integral part of their strategies. After all, games entail the existence of some agreement to play and this means that the players accept some rules (this is the role of the prosecutor in the Prisoners' Dilemma). If some outside rules (of the game) are permissible - why not allow the "risk" that all the players will agree to form an outside, lawfully binding, arbitration and enforcement agency - as part of the game? Such an agency will be nothing if not the embodiment, the materialization of one of the rules, a move in the players' strategies, leading them to more optimal or superior outcomes as far as their utility functions are concerned.

Bargaining inevitably leads to an agreement regarding a decision making procedure. An outside agency, which enforces cooperation and some moral code, is such a decision making procedure. It is not an "outside" agency in the true, physical, sense. It does not "alter" the game (not to mention its rules). It IS the game, it is a procedure, a way to resolve conflicts, an integral part of any solution and imputation, the herald of cooperation, a representative of some of the will of all the players and, therefore, a part both of their utility functions and of their strategies to obtain their preferred outcomes. Really, these outside agencies ARE the desired outcomes. Once Game Theory digests this observation, it could tackle reality rather than its own idealized contraptions.

XLII. Market Impeders and Market Inefficiencies

Even the most devout proponents of free marketry and hidden hand theories acknowledge the existence of market failures, market imperfections and inefficiencies in the allocation of economic resources. Some of these are the results of structural problems, others of an accumulation of historical liabilities. But, strikingly, some of the inefficiencies are the direct outcomes of the activities of "non bona fide" market participants. These "players" (individuals, corporations, even larger economic bodies, such as states) act either irrationally or egotistically (too rationally).

What characterizes all those "market impeders" is that they are value subtractors rather than value adders. Their activities generate a reduction, rather than an increase, in the total benefits (utilities) of all the other market players (themselves included). Some of them do it because they are after a self interest which is not economic (or, more strictly, financial). They sacrifice some economic benefits in order to satisfy that self interest (or, else, they could never have attained these benefits, in the first place).

Others refuse to accept the self interest of other players as their limit. They try to maximize their benefits at any cost, as long as it is a cost to others. Some do so legally and some adopt shadier varieties of behaviour. And there is a group of parasites - participants in the market who feed off its very inefficiencies and imperfections and, by their very actions, enhance them. A vicious cycle ensues: the body economic gives rise to parasitic agents who thrive on its imperfections and lead to the amplification of the very impurities that they prosper on.

We can distinguish six classes of market impeders: 1. Crooks and other illegal operators. These take advantage of ignorance, superstition, greed, avarice, emotional states of mind of their victims - to strike. They re-allocate resources from (potentially or actually) productive agents to themselves. Because they reduce the level of trust in the marketplace - they create negative added value. (See: "The Shadowy World of International Finance" and "The Fabric of Economic Trust") 2. Illegitimate operators include those treading the thin line between legally permissible and ethically inadmissible. They engage in petty cheating through misrepresentations, half-truths, semi- rumours and the like. They are full of pretensions to the point of becoming impostors. They are wheeler-dealers, sharp-cookies, Daymon Ranyon characters, lurking in the shadows cast by the sun of the market. Their impact is to slow down the economic process through disinformation and the resulting misallocation of resources. They are the sand in the wheels of the economic machine. 3. The "not serious" operators. These are people too hesitant, or phobic to commit themselves to the assumption of any kind of risk. Risk is the coal in the various locomotives of the economy, whether local, national, or global. Risk is being assumed, traded, diversified out of, avoided, insured against.

It gives rise to visions and hopes and it is the most efficient "economic natural selection" mechanism.

To be a market participant one must assume risk, it in an inseparable part of economic activity.

Without it the wheels of commerce and finance, investments and technological innovation will immediately grind to a halt. But many operators are so risk averse that, in effect, they increase the inefficiency of the market in order to avoid it.

They act as though they are resolute, risk assuming operators. They make all the right moves, utter all the right sentences and emit the perfect noises. But when push comes to shove - they recoil, retreat, defeated before staging a fight. Thus, they waste the collective resources of all that the operators that they get involved with. They are known to endlessly review projects, often change their minds, act in fits and starts, have the wrong priorities (for an efficient economic functioning, that is), behave in a self defeating manner, be horrified by any hint of risk, saddled and surrounded by every conceivable consultant, glutted by information. They are the stick in the spinning wheel of the modern marketplace. 4. The former kind of operators obviously has a character problem. Yet, there is a more problematic species: those suffering from serious psychological problems, personality disorders, clinical phobias, psychoneuroses and the like. This human aspect of the economic realm has, to the best of my knowledge, been neglected before.

Enormous amounts of time, efforts, money and energy are expended by the more "normal" - because of the "less normal" and the "eccentric".

These operators are likely to regard the maintaining of their internal emotional balance as paramount, far over-riding economic considerations. They will sacrifice economic advantages and benefits and adversely affect their utility outcome in the name of principles, to quell psychological tensions and pressures, as part of obsessive-compulsive rituals, to maintain a false grandiose image, to go on living in a land of fantasy, to resolve a psychodynamic conflict and, generally, to cope with personal problems which have nothing to do with the idealized rational economic player of the theories. If quantified, the amounts of resources wasted in these coping manoeuvres is, probably, mind numbing. Many deals clinched are revoked, many businesses started end, many detrimental policy decisions adopted and many potentially beneficial situations avoided because of these personal upheavals. 5. Speculators and middlemen are yet another species of parasites. In a theoretically totally efficient marketplace - there would have been no niche for them. They both thrive on information failures. The first kind engages in arbitrage (differences in pricing in two markets of an identical good - the result of inefficient dissemination of information) and in gambling.

These are important and blessed functions in an imperfect world because they make it more perfect. The speculative activity equates prices and, therefore, sends the right signals to market operators as to how and where to most efficiently allocate their resources. But this is the passive speculator. The "active" speculator is really a market rigger. He corners the market by the dubious virtue of his reputation and size. He influences the market (even creates it) rather than merely exploit its imperfections. Soros and Buffet have such an influence though their effect is likely to be considered beneficial by unbiased observers.

Middlemen are a different story because most of them belong to the active subcategory. This means that they, on purpose, generate market inconsistencies, inefficiencies and problems - only to solve them later at a cost extracted and paid to them, the perpetrators of the problem. Leaving ethical questions aside, this is a highly wasteful process. Middlemen use privileged information and access - whereas speculators use information of a more public nature. Speculators normally work within closely monitored, full disclosure, transparent markets. Middlemen thrive of disinformation, misinformation and lack of information. Middlemen monopolize their information - speculators share it, willingly or not.

The more information becomes available to more users - the greater the deterioration in the resources consumed by brokers of information.

The same process will likely apply to middlemen of goods and services. We are likely to witness the death of the car dealer, the classical retail outlet, the music records shop. For that matter, inventions like the internet is likely to short-circuit the whole distribution process in a matter of a few years. 6. The last type of market impeders is well known and is the only one to have been tackled - with varying degrees of success by governments and by legislators worldwide. These are the trade restricting arrangements: monopolies, cartels, trusts and other illegal organizations. Rivers of inks were spilled over forests of paper to explain the pernicious effects of these anti-competitive practices (see: "Competition Laws"). The short and the long of it is that competition enhances and increases efficiency and that, therefore, anything that restricts competition, weakens and lessens efficiency.

What could anyone do about these inefficiencies? The world goes in circles of increasing and decreasing free marketry. The globe was a more open, competitive and, in certain respects, efficient place at the beginning of the 20th century than it is now. Capital flowed more freely and so did labour. Foreign Direct Investment was bigger. The more efficient, "friction free" the dissemination of information (the ultimate resource) - the less waste and the smaller the lebensraum for parasites. The more adherence to market, price driven, open auction based, meritocratic mechanisms - the less middlemen, speculators, bribers, monopolies, cartels and trusts. The less political involvement in the workings of the market and, in general, in what consenting adults conspire to do that is not harmful to others - the more efficient and flowing the economic ambience is likely to become.

This picture of "laissez faire, laissez aller" should be complimented by even stricter legislation coupled with effective and draconian law enforcement agents and measures. The illegal and the illegitimate should be stamped out, cruelly. Freedom to all - is also freedom from being conned or hassled. Only when the righteous freely prosper and the less righteous excessively suffer - only then will we have entered the efficient kingdom of the free market.

This still does not deal with the "not serious" and the "personality disordered". What about the inefficient havoc that they wreak? This, after all, is part of what is known, in legal parlance as: "force majeure".

Note There is a raging debate between the "rational expectations" theory and the "prospect theory". The former - the cornerstone of rational economics - assumes that economic (human) players are rational and out to maximize their utility (see: "The Happiness of Others", "The Egotistic Friend" and "The Distributive Justice of the Market"). Even ignoring the fuzzy logic behind the ill- defined philosophical term "utility" - rational economics has very little to do with real human being and a lot to do with sterile (though mildly useful) abstractions. Prospect theory builds on behavioural research in modern psychology which demonstrates that people are more loss averse than gain seekers (utility maximizers). Other economists have succeeded to demonstrate irrational behaviours of economic actors (heuristics, dissonances, biases, magical thinking and so on).

The apparent chasm between the rational theories (efficient markets, hidden hands and so on) and behavioural economics is the result of two philosophical fallacies which, in turn, are based on the misapplication and misinterpretation of philosophical terms.

The first fallacy is to assume that all forms of utility are reducible to one another or to money terms. Thus, the values attached to all utilities are expressed in monetary terms. This is wrong. Some people prefer leisure, or freedom, or predictability to expected money. This is the very essence of risk aversion: a trade off between the utility of predictability (absence or minimization of risk) and the expected utility of money. In other words, people have many utility functions running simultaneously - or, at best, one utility function with many variables and coefficients. This is why taxi drivers in New York cease working in a busy day, having reached a pre-determined income target: the utility function of their money equals the utility function of their leisure.

How can these coefficients (and the values of these variables) be determined? Only by engaging in extensive empirical research. There is no way for any theory or "explanation" to predict these values. We have yet to reach the stage of being able to quantify, measure and numerically predict human behaviour and personality (=the set of adaptive traits and their interactions with changing circumstances). That economics is a branch of psychology is becoming more evident by the day. It would do well to lose its mathematical pretensions and adopt the statistical methods of its humbler relative.

The second fallacy is the assumption underlying both rational and behavioural economics that human nature is an "object" to be analysed and "studied", that it is static and unchanged. But, of course, humans change inexorably. This is the only fixed feature of being human: change. Some changes are unpredictable, even in deterministic principle. Other changes are well documented. An example of the latter class of changes in the learning curve. Humans learn and the more they learn the more they alter their behaviour. So, to obtain any meaningful data, one has to observe behaviour in time, to obtain a sequence of reactions and actions. To isolate, observe and manipulate environmental variables and study human interactions. No snapshot can approximate a video sequence where humans are concerned.

XLIII. The Pettifogger Procurators

Diplomats in Post-Communist Countries

In 2001, the most unusual event has gone unnoticed in the international press. A former minister of finance has accused the more prominent members of the diplomatic corps in his country of corruption. He insisted that these paragons of indignant righteousness and hectoring morality have tried to blackmail him into paying them hefty commissions from money allotted to exigent humanitarian aid. This was immediately and from afar - and, therefore, without proper investigation - denied by their superiors in no uncertain terms.

The facts are these: most (though by no means all) Western diplomats in the nightmarish wasteland that is East Europe and the Balkan, the unctuously fulsome and the frowzily wizened alike, are ageing and sybaritic basket cases. They have often failed miserably in their bootless previous posts - or have insufficiently submerged in the Byzantine culture of their employers. Thus emotionally injured and cast into the frigorific outer darkness of a ravaged continent, they adopt the imperial patina of Roman procurators in narcissistic compensation. Their long suffering wives - bored to distraction in the impassibly catatonic societies of post communism - impose upon a reluctant and flummoxed population the nescient folderol of their distaff voluntary urges or exiguous artistic talents. Ever more crapulous, they aestivate and hibernate, the queens of tatty courts and shabby courtiers.

The cold war having ebbed, these emissaries of questionable provenance engage in the promotion of the narrow interests of specific industries or companies. They lobby the local administration, deploying bare threats and obloquies where veiled charm fails. They exert subtle or brutal pressure through the press. They co-opt name- dropping bureaucrats and bribe pivotal politicians. They get fired those who won't collaborate or threaten to expose their less defensible misdeeds. They are glorified delivery boys, carrying apocryphal messages to and fro. They are bloviating PR campaigners, seeking to aggrandize their meagre role and, incidentally, that of their country. They wine and dine and banter endlessly with the provincial somnolent variety of public figures, members of the venal and pinchbeck elites that now rule these tortured territories. In short - forced to deal with the bedizened miscreants that pass for businessmen and politicians in this nether world - they are transformed, assuming in the process the identity of their obdurately corrupted hosts.

Thus, they help to sway elections and hasten to endorse their results, however disputed and patently fraudulent.

They intimidate the opposition, negotiate with businessmen, prod favoured politicians, spread roorbacks and perambulate their fiefdom to gather intelligence.

More often than not, they cross the limpid lines between promotion and extortion, lagniappe and pelf, friendship and collusion, diplomacy and protectorate, the kosher and the criminal.

They are the target and the address of a legion of pressures and demands. Their government may ask them to help depose one coalition and help install another.

Their secret services - disguised as intrusive NGOs or workers at the embassy - often get them involved in shady acts and unscrupulous practices. Real NGOs ask for their assiduous assistance and protection. Their hosts - and centuries old protocol - expect them to surreptitiously provide support while openly refrain from intervening, maintaining equipoise. Other countries protest, compete, or leak damaging reports to an often hostile media. The torpid common folk resent them for their colonial ways and hypocritical demarches. Lacking compunction, they are nobody's favourites and everybody's scapegoats at one time or another.

And they are ill-equipped to deal with these subtleties.

Not of intelligence, they end where they now are and wish they weren't. Ignorant of business and entrepreneurship, they occupy the dead end, otiose and pension-orientated jobs they do. Devoid of the charm, negotiating skills and human relations required by the intricacies of their profession - they are relegated to the Augean outskirts of civilization. Dishonest and mountebank, they persist in their mortifying positions, inured to the conniving they require.

This blatantly discernible ineptitude provokes the "natives" into a wholesale rejection of the West, its values and its culture. The envoys are perceived as the cormorant reification of their remote controllers. Their voluptuary decadence is a distant echo of the West's decay, their nonage greed - a shadow of its avarice, their effrontery and hidebound peremptory nature - its mien. They are in no position to preach or teach.

The diplomats of the West are not evil. Some of them mean well. To the best of their oft limited abilities, they cadge and beg and press and convince their governments to show goodwill and to contribute to their hosts. But soon their mettle is desiccated by the vexatious realities of their new habitation. Reduced to susurrus cynicism and sardonic contempt, they perfunctorily perform their functions, a distant look in their now empty eyes. They have been assimilated, rendered useless to their dispatchers and to their hosts alike.

XLIV. Microsoft's Third Front

The Intellectual Property Wars

Elated investors greeted chairman Bill Gates and chief executive officer Steve Ballmer for Microsoft's victory in the titanic antitrust lawsuit brought against it by the Department of Justice and assorted state attorneys general.

They also demanded that Microsoft distribute its pile of cash - $40 billion in monopoly profits - as dividends.

But Microsoft may need that hoard. The battle is far from over. The European Commission, though much weakened by recent European Court of First Instance rulings against its competition commissioner, Mario Monti, can fine the company up to one tenth its worldwide turnover if it finds against it. Microsoft is being investigated by the European watchdog for anti-competitive practices now threatening to spread into the high-end server software and digital media markets.

But the software colossus faces an even more daunting third front in central and eastern Europe and Asia. It is the war against piracy. Both its operating system, Windows, and its office productivity suite, Office, are widely cracked and replicated throughout these regions.

Three years ago, Microsoft negotiated a $3 million settlement with the government of Macedonia, one of the single largest abusers of intellectual property rights in this tiny country. More than 1 percent of Macedonia's GDP is said by various observers to be derived from software and digital content piracy.

According to Yugoslavia's news agency, Tanjug, The governments of Serbia and Yugoslavia purchased, last month, 30,000 software licenses from the Redmond giant.

Another 10-15,000 are in the pipeline. Aleksandar Bojovic, public relations manager of Microsoft's representative office in Belgrade was ebullient: "Before the signing of an agreement on a strategic partnership with authorities of Yugoslavia and Serbia, the percentage of legal software used by the citizens and industry of Serbia and Montenegro was only a few percents. Presently it is about 20 percents. Microsoft is more than surprised at the interest for legalization that exists in Yugoslavia".

According to the Yugoslav newspaper Danas, Microsoft Yugoslavia has developed versions of Windows and Office in Serbian, replete with a spell-checker. There are c. 1 million computers in Yugoslavia. The company undertook, last year, to revamp the Yugoslav labyrinthine health, education, customs and tax systems. It also sent representatives to a delegation of businessmen that visited Bosnia-Herzegovina in February.

Microsoft obstinately refused to price its products differentially - to charge less in poorer markets. The Office suite costs the equivalent of 6 weeks of the average wage in Macedonia and a whopping 3 months' wages in Serbia. This extortionate pricing gave rise to resentment and thriving markets in pilfered Microsoft applications.

Pirated software costs between $1.5 per compact disk in Macedonia and $3 in Moscow's immense open-air Gorbushka market.

According to the Russia-based Compulog Computer Consultants, quoted by USA Today, most communist states maintained large-scale hacking operations involving not only the security services, but also the computers and electrical engineering departments of universities and prestigious research institutes. American bans on the sale of certain software applications - such as computer-aided design and encryption - fostered the emergence of an officially-sanctioned subculture of crackers and pirates.

In the last few years, Russian organized crime has evolved to incorporate computer fraud, identity theft, piracy of software and digital media and other related offenses. The Russian mafia employs programmers and graduates of computer sciences. The British Daily Express reported in September that - probably Russian - hackers broke into Microsoft's computer network and absconded with invaluable source codes. These are believed to be now also in the possession of the FSB, the chief successor to Russia's notorious KGB.

The Business Software Alliance, a United States based trade group, claims that 87-92 percent of all business computer programs used in Russia are bootlegged - a piracy rate second only to China's. Microsoft sells c. $80- 100 million a year in the Russian Federation and the CIS.

Had it not been for piracy, its revenues could have climbed well above the $1 billion mark.

According to Moscow Times and RosBalt, Microsoft's sales in Russia almost doubled in the last 12 months and it has decided to expand into the regions outlying Moscow and into Kazakhstan and Ukraine. Yet, the company's attempts to stamp out illicit copying in the last years of Russian president Boris Yeltsin's regime - including a much publicized visit by Bill Gates and a series of televised raids on disk stamping factories - floundered and yielded a wave of xenophobic indignation.

Still, central and eastern Europe is a natural growth market for the likes of Microsoft. The region is awash with highly qualified, talented, and - by Western measure - sinfully cheap experts. Purchasing power has increased precipitously in countries like the Czech Republic, Hungary, Slovakia, Slovenia, parts of Russia, and Croatia.

Both governments and businesses are at the initial stages of investing in information technology infrastructure.

Technological leapfrogging rendered certain countries here more advanced than the West in terms of broadband and wireless networks.

XLV. NGOs - The Self-Appointed Altruists

Their arrival portends rising local prices and a culture shock. Many of them live in plush apartments, or five star hotels, drive SUV's, sport $3000 laptops and PDA's. They earn a two figure multiple of the local average wage. They are busybodies, preachers, critics, do-gooders, and professional altruists.

Always self-appointed, they answer to no constituency.

Though unelected and ignorant of local realities, they confront the democratically chosen and those who voted them into office. A few of them are enmeshed in crime and corruption. They are the non-governmental organizations, or NGO's.

Some NGO's - like Oxfam, Human Rights Watch, Medecins Sans Frontieres, or Amnesty - genuinely contribute to enhancing welfare, to the mitigation of hunger, the furtherance of human and civil rights, or the curbing of disease. Others - usually in the guise of think tanks and lobby groups - are sometimes ideologically biased, or religiously-committed and, often, at the service of special interests.

NGO's - such as the International Crisis Group - have openly interfered on behalf of the opposition in the last parliamentary elections in Macedonia. Other NGO's have done so in Belarus and Ukraine, Zimbabwe and Israel, Nigeria and Thailand, Slovakia and Hungary - and even in Western, rich, countries including the USA, Canada, Germany, and Belgium.

The encroachment on state sovereignty of international law - enshrined in numerous treaties and conventions - allows NGO's to get involved in hitherto strictly domestic affairs like corruption, civil rights, the composition of the media, the penal and civil codes, environmental policies, or the allocation of economic resources and of natural endowments, such as land and water. No field of government activity is now exempt from the glare of NGO's. They serve as self-appointed witnesses, judges, jury and executioner rolled into one.

Regardless of their persuasion or modus operandi, all NGO's are top heavy with entrenched, well-remunerated, extravagantly-perked bureaucracies. Opacity is typical of NGO's. Amnesty's rules prevent its officials from publicly discussing the inner workings of the organization - proposals, debates, opinions - until they have become officially voted into its Mandate. Thus, dissenting views rarely get an open hearing.

Contrary to their teachings, the financing of NGO's is invariably obscure and their sponsors unknown. The bulk of the income of most non-governmental organizations, even the largest ones, comes from - usually foreign - powers. Many NGO's serve as official contractors for governments.

NGO's serve as long arms of their sponsoring states - gathering intelligence, burnishing their image, and promoting their interests. There is a revolving door between the staff of NGO's and government bureaucracies the world over. The British Foreign Office finances a host of NGO's - including the fiercely "independent" Global Witness - in troubled spots, such as Angola. Many host governments accuse NGO's of - unwittingly or knowingly - serving as hotbeds of espionage.

Very few NGO's derive some of their income from public contributions and donations. The more substantial NGO's spend one tenth of their budget on PR and solicitation of charity. In a desperate bid to attract international attention, so many of them lied about their projects in the Rwanda crisis in 1994, recounts "The Economist", that the Red Cross felt compelled to draw up a ten point mandatory NGO code of ethics. A code of conduct was adopted in 1995. But the phenomenon recurred in Kosovo.

All NGO's claim to be not for profit - yet, many of them possess sizable equity portfolios and abuse their position to increase the market share of firms they own. Conflicts of interest and unethical behavior abound.

Cafedirect is a British firm committed to "fair trade" coffee. Oxfam, an NGO, embarked, three years ago, on a campaign targeted at Cafedirect's competitors, accusing them of exploiting growers by paying them a tiny fraction of the retail price of the coffee they sell. Yet, Oxfam owns 25% of Cafedirect.

Large NGO's resemble multinational corporations in structure and operation. They are hierarchical, maintain large media, government lobbying, and PR departments, head-hunt, invest proceeds in professionally-managed portfolios, compete in government tenders, and own a variety of unrelated businesses. The Aga Khan Fund for Economic Development owns the license for second mobile phone operator in Afghanistan - among other businesses. In this respect, NGO's are more like cults than like civic organizations.

Many NGO's promote economic causes - anti- globalization, the banning of child labor, the relaxing of intellectual property rights, or fair payment for agricultural products. Many of these causes are both worthy and sound. Alas, most NGO's lack economic expertise and inflict damage on the alleged recipients of their beneficence. NGO's are at times manipulated by - or collude with - industrial groups and political parties.

It is telling that the denizens of many developing countries suspect the West and its NGO's of promoting an agenda of trade protectionism. Stringent - and expensive - labor and environmental provisions in international treaties may well be a ploy to fend off imports based on cheap labor and the competition they wreak on well-ensconced domestic industries and their political stooges.

Take child labor - as distinct from the universally condemnable phenomena of child prostitution, child soldiering, or child slavery.

Child labor, in many destitute locales, is all that separates the family from all-pervasive, life threatening, poverty. As national income grows, child labor declines. Following the outcry provoked, in 1995, by NGO's against soccer balls stitched by children in Pakistan, both Nike and Reebok relocated their workshops and sacked countless women and 7000 children. The average family income - anyhow meager - fell by 20 percent.

This affair elicited the following wry commentary from economists Drusilla Brown, Alan Deardorif, and Robert Stern: "While Baden Sports can quite credibly claim that their soccer balls are not sewn by children, the relocation of their production facility undoubtedly did nothing for their former child workers and their families".

This is far from being a unique case. Threatened with legal reprisals and "reputation risks" (being named-and- shamed by overzealous NGO's) - multinationals engage in preemptive sacking. More than 50,000 children in Bangladesh were let go in 1993 by German garment factories in anticipation of the American never-legislated Child Labor Deterrence Act.

Former Secretary of Labor, Robert Reich, observed: "Stopping child labor without doing anything else could leave children worse off. If they are working out of necessity, as most are, stopping them could force them into prostitution or other employment with greater personal dangers. The most important thing is that they be in school and receive the education to help them leave poverty".

NGO-fostered hype notwithstanding, 70% of all children work within their family unit, in agriculture. Less than 1 percent are employed in mining and another 2 percent in construction. Again contrary to NGO-proffered panaceas, education is not a solution. Millions graduate every year in developing countries - 100,000 in Morocco alone. But unemployment reaches more than one third of the workforce in places such as Macedonia.

Children at work may be harshly treated by their supervisors but at least they are kept off the far more menacing streets. Some kids even end up with a skill and are rendered employable. "The Economist" sums up the shortsightedness, inaptitude, ignorance, and self-centeredness of NGO's neatly: "Suppose that in the remorseless search for profit, multinationals pay sweatshop wages to their workers in developing countries. Regulation forcing them to pay higher wages is demanded... The NGOs, the reformed multinationals and enlightened rich-country governments propose tough rules on third-world factory wages, backed up by trade barriers to keep out imports from countries that do not comply. Shoppers in the West pay more - but willingly, because they know it is in a good cause. The NGOs declare another victory. The companies, having shafted their third-world competition and protected their domestic markets, count their bigger profits (higher wage costs notwithstanding). And the third-world workers displaced from locally owned factories explain to their children why the West's new deal for the victims of capitalism requires them to starve".

NGO's in places like Sudan, Somalia, Myanmar, Bangladesh, Pakistan, Albania, and Zimbabwe have become the preferred venue for Western aid - both humanitarian and financial - development financing, and emergency relief. According to the Red Cross, more money goes through NGO's than through the World Bank.

Their iron grip on food, medicine, and funds rendered them an alternative government - sometimes as venal and graft-stricken as the one they replace.

Local businessmen, politicians, academics, and even journalists form NGO's to plug into the avalanche of Western largesse. In the process, they award themselves and their relatives with salaries, perks, and preferred access to Western goods and credits. NGO's have evolved into vast networks of patronage in Africa, Latin America, and Asia.

NGO's chase disasters with a relish. More than 200 of them opened shop in the aftermath of the Kosovo refugee crisis in 1999-2000. Another 50 supplanted them during the civil unrest in Macedonia a year later. Floods, elections, earthquakes, wars - constitute the cornucopia that feed the NGO's.

NGO's are proponents of Western values - women's lib, human rights, civil rights, the protection of minorities, freedom, equality. Not everyone finds this liberal menu palatable. The arrival of NGO's often provokes social polarization and cultural clashes. Traditionalists in Bangladesh, nationalists in Macedonia, religious zealots in Israel, security forces everywhere, and almost all politicians find NGO's irritating and bothersome.

The British government ploughs well over $30 million a year into "Proshika", a Bangladeshi NGO. It started as a women's education outfit and ended up as a restive and aggressive women empowerment political lobby group with budgets to rival many ministries in this impoverished, Moslem and patriarchal country.

Other NGO's - fuelled by $300 million of annual foreign infusion - evolved from humble origins to become mighty coalitions of full-time activists. NGO's like the Bangladesh Rural Advancement Committee (BRAC) and the Association for Social Advancement mushroomed even as their agendas have been fully implemented and their goals exceeded. It now owns and operates 30,000 schools.

This mission creep is not unique to developing countries.

As Parkinson discerned, organizations tend to self- perpetuate regardless of their proclaimed charter.

Remember NATO? Human rights organizations, like Amnesty, are now attempting to incorporate in their ever- expanding remit "economic and social rights" - such as the rights to food, housing, fair wages, potable water, sanitation, and health provision. How insolvent countries are supposed to provide such munificence is conveniently overlooked. "The Economist" reviewed a few of the more egregious cases of NGO imperialism.

Human Rights Watch lately offered this tortured argument in favor of expanding the role of human rights NGO's: "The best way to prevent famine today is to secure the right to free expression - so that misguided government policies can be brought to public attention and corrected before food shortages become acute." It blatantly ignored the fact that respect for human and political rights does not fend off natural disasters and disease. The two countries with the highest incidence of AIDS are Africa's only two true democracies - Botswana and South Africa.

The Centre for Economic and Social Rights, an American outfit, "challenges economic injustice as a violation of international human rights law". Oxfam pledges to support the "rights to a sustainable livelihood, and the rights and capacities to participate in societies and make positive changes to people's lives". In a poor attempt at emulation, the WHO published an inanely titled document - "A Human Rights Approach to Tuberculosis".

NGO's are becoming not only all-pervasive but more aggressive. In their capacity as "shareholder activists", they disrupt shareholders meetings and act to actively tarnish corporate and individual reputations. Friends of the Earth worked hard four years ago to instigate a consumer boycott against Exxon Mobil - for not investing in renewable energy resources and for ignoring global warming. No one - including other shareholders - understood their demands. But it went down well with the media, with a few celebrities, and with contributors.

As "think tanks", NGO's issue partisan and biased reports.

The International Crisis Group published a rabid attack on the then incumbent government of Macedonia, days before an election, relegating the rampant corruption of its predecessors - whom it seemed to be tacitly supporting - to a few footnotes. On at least two occasions - in its reports regarding Bosnia and Zimbabwe - ICG has recommended confrontation, the imposition of sanctions, and, if all else fails, the use of force. Though the most vocal and visible, it is far from being the only NGO that advocates "just" wars.

The ICG is a repository of former heads of state and has- been politicians and is renowned (and notorious) for its prescriptive - some say meddlesome - philosophy and tactics. "The Economist" remarked sardonically: "To say (that ICG) is 'solving world crises' is to risk underestimating its ambitions, if overestimating its achievements".

NGO's have orchestrated the violent showdown during the trade talks in Seattle in 1999 and its repeat performances throughout the world. The World Bank was so intimidated by the riotous invasion of its premises in the NGO- choreographed "Fifty Years is Enough" campaign of 1994, that it now employs dozens of NGO activists and let NGO's determine many of its policies.

NGO activists have joined the armed - though mostly peaceful - rebels of the Chiapas region in Mexico.

Norwegian NGO's sent members to forcibly board whaling ships. In the USA, anti-abortion activists have murdered doctors. In Britain, animal rights zealots have both assassinated experimental scientists and wrecked property.

Birth control NGO's carry out mass sterilizations in poor countries, financed by rich country governments in a bid to stem immigration. NGO's buy slaves in Sudan thus encouraging the practice of slave hunting throughout sub- Saharan Africa. Other NGO's actively collaborate with "rebel" armies - a euphemism for terrorists.

NGO's lack a synoptic view and their work often undermines efforts by international organizations such as the UNHCR and by governments. Poorly-paid local officials have to contend with crumbling budgets as the funds are diverted to rich expatriates doing the same job for a multiple of the cost and with inexhaustible hubris.

This is not conducive to happy co-existence between foreign do-gooders and indigenous governments.

Sometimes NGO's seem to be an ingenious ploy to solve Western unemployment at the expense of down-trodden natives. This is a misperception driven by envy and avarice.

But it is still powerful enough to foster resentment and worse. NGO's are on the verge of provoking a ruinous backlash against them in their countries of destination.

That would be a pity. Some of them are doing indispensable work. If only they were a wee more sensitive and somewhat less ostentatious. But then they wouldn't be NGO's, would they?

Interview granted to Revista Terra, Brazil, September 2005 Q. NGOs are growing quickly in Brazil due to the discredit politicians and governmental institutions face after decades of corruption, elitism etc. The young people feel they can do something concrete working as activists in a NGOs. Isn't that a good thing? What kind of dangers someone should be aware before enlisting himself as a supporter of a NGO? A. One must clearly distinguish between NGOs in the sated, wealthy, industrialized West - and (the far more numerous) NGOs in the developing and less developed countries.

Western NGOs are the heirs to the Victorian tradition of "White Man's Burden". They are missionary and charity- orientated. They are designed to spread both aid (food, medicines, contraceptives, etc.) and Western values. They closely collaborate with Western governments and institutions against local governments and institutions.

They are powerful, rich, and care less about the welfare of the indigenous population than about "universal" principles of ethical conduct.

Their counterparts in less developed and in developing countries serve as substitutes to failed or dysfunctional state institutions and services. They are rarely concerned with the furthering of any agenda and more preoccupied with the well-being of their constituents, the people.

Q. Why do you think many NGO activists are narcissists and not altruists? What are the symptoms you identify on them? A. In both types of organizations - Western NGOs and NGOs elsewhere - there is a lot of waste and corruption, double-dealing, self-interested promotion, and, sometimes inevitably, collusion with unsavory elements of society.

Both organizations attract narcissistic opportunists who regards NGOs as venues of upward social mobility and self-enrichment. Many NGOs serve as sinecures, "manpower sinks", or "employment agencies" - they provide work to people who, otherwise, are unemployable. Some NGOs are involved in political networks of patronage, nepotism, and cronyism.

Narcissists are attracted to money, power, and glamour.

NGOs provide all three. The officers of many NGOs draw exorbitant salaries (compared to the average salary where the NGO operates) and enjoy a panoply of work-related perks. Some NGOs exert a lot of political influence and hold power over the lives of millions of aid recipients.

NGOs and their workers are, therefore, often in the limelight and many NGO activists have become minor celebrities and frequent guests in talk shows and such.

Even critics of NGOs are often interviewed by the media (laughing).

Finally, a slim minority of NGO officers and workers are simply corrupt. They collude with venal officials to enrich themselves. For instance: during the Kosovo crisis in 1999, NGO employees sold in the open market food, blankets, and medical supplies intended for the refugees.

Q. How can one choose between good and bad NGOs? A. There are a few simple tests: 1. What part of the NGO's budget is spent on salaries and perks for the NGO's officers and employees? The less the better. 2. Which part of the budget is spent on furthering the aims of the NGO and on implementing its promulgated programs? The more the better. 3. What portion of the NGOs resources is allocated to public relations and advertising? The less the better. 4. What part of the budget is contributed by governments, directly or indirectly? The less the better. 5. What do the alleged beneficiaries of the NGO's activities think of the NGO? If the NGO is feared, resented, and hated by the local denizens, then something is wrong! 6. How many of the NGO's operatives are in the field, catering to the needs of the NGO's ostensible constituents? The more the better. 7. Does the NGO own or run commercial enterprises? If it does, it is a corrupt and compromised NGO involved in conflicts of interest.

Q. The way you describe, many NGO are already more powerful and politically influential than many governments. What kind of dangers this elicits? Do you think they are a pest that need control? What kind of control would that be? A. The voluntary sector is now a cancerous phenomenon.

NGOs interfere in domestic politics and take sides in election campaigns. They disrupt local economies to the detriment of the impoverished populace. They impose alien religious or Western values. They justify military interventions. They maintain commercial interests which compete with indigenous manufacturers. They provoke unrest in many a place. And this is a partial list.

The trouble is that, as opposed to most governments in the world, NGOs are authoritarian. They are not elected institutions. They cannot be voted down. The people have no power over them. Most NGOs are ominously and tellingly secretive about their activities and finances.

Light disinfects. The solution is to force NGOs to become both democratic and accountable. All countries and multinational organizations (such as the UN) should pass laws and sign international conventions to regulate the formation and operation of NGOs.

NGOs should be forced to democratize. Elections should be introduced on every level. All NGOs should hold "annual stakeholder meetings" and include in these gatherings representatives of the target populations of the NGOs. NGO finances should be made completely transparent and publicly accessible. New accounting standards should be developed and introduced to cope with the current pecuniary opacity and operational double- speak of NGOs.

Q. It seems that many values carried by NGO are typically modern and Western. What kind of problems this creates in more traditional and culturally different countries? A. Big problems. The assumption that the West has the monopoly on ethical values is undisguised cultural chauvinism. This arrogance is the 21st century equivalent of the colonialism and racism of the 19th and 20th century. Local populations throughout the world resent this haughty presumption and imposition bitterly.

As you said, NGOs are proponents of modern Western values - democracy, women's lib, human rights, civil rights, the protection of minorities, freedom, equality. Not everyone finds this liberal menu palatable. The arrival of NGOs often provokes social polarization and cultural clashes.

XLVII. Quis Custodiet Ipsos Custodes?

Who is Guarding the Guards in Countries in Transition from Communism?

Written: August 23, 1999

Izetbegovic, the nominal president of the nominal Bosnian state, the darling of the gullible western media, denies that he and his cronies and his cronies' cronies stole 40% of all civilian aid targeted at Bosnia - a minor matter of 1 billion US dollars and change, in less than 4 years. The tribes of the Balkans stop bleeding each other to death only when they gang up to bleed another. In this, there are no races and no traces - everyone is equal under the sign of the dollar. Serbs, Bosnians and Croats divided the loot with the loftiest of egalitarian instincts. Honour among thieves transformed into honour among victims and their murderers. Mammon is the only real authority in this god forsaken, writhing rump of a country.

And not only there.

In Russia, billions (3 to 5) were transferred to secret off shore bank accounts to be "portfolio managed" by mysterious fly-by-night entities. Many paid with their jobs when the trail led to the incestuous Yeltsin clan and their byzantine court.

Convoys snake across the mountainous Kosovo, bringing smuggled goods at exorbitant prices to the inhabitants of this parched territory - all under the avuncular gaze of multinational peacekeepers.

In Romania, Hungary and Greece, UN forces have been known to take bribes to allow goods into besieged Serbia.

Oil, weapons and strategic materials, all slid across this greasy channel of the international brotherhood of cash.

A lot of the aid, ostensibly intended to ameliorate the state of refugedom imposed upon the unsuspecting, harried population of Kosovo - resurfaced in markets, white and black, across the region. Food, blankets, tents, electrical equipment, even toys - were on offer in bazaars from Skopje to Podgorica and from Sofia to Thessaloniki, replete with the stamps of the unwitting donors. Aid workers scurried back and forth in expensive utility vehicles, buzzing mobile phones in hand and latest model, officially purchased, infrared laptops humming in the air conditioned coolness of their five star hotel rooms (or fancy apartments). In their back pockets they safeguarded their first class tickets (the food is better and the stewardesses ...). The scavengers of every carnage, they descended upon this tortured land in redundant hordes, feeding off the misery, the autoimmune deficiency of the syndrome of humanism.

Ask yourselves: how could one of every 3 dollars - 50% of GNP - be stolen in a country the size of a tiny American state - without the knowledge and collaboration of the international organizations which ostensibly manage this bedlam? Why did the IMF renew the credit lines to a Russia which cheated bold-facely regarding its foreign exchange reserves? How was Serbia awash and flush with oil and other goods prohibited under the terms of the never-ending series of embargoes imposed upon it? The answer is that potent cocktail of fear and graft. First came fear - that Russia will collapse, that the Balkans will spill over, that Bosnia will disintegrate. Nuclear nightmares intermingled with Armenian and Jewish flashbacks of genocide. The west shut its eyes tight and threw money at the bad spirits of irredentism and re- emergent communism. The long arm of the USA, the "international" financial institutions, collaborated in constructing the habit forming dole house that Eastern and Southern Europe has become. This conflict-reticence, these approach-avoidance cycles led to an inevitable collusion between the ruling mob families that pass for regimes in these parts of the planet - and the unilateral institutions that pass for multilateral ones in the rest of it.

An elaborate system of winks and nods, the sign language of institutional rot and decaying governance, took over.

Greasy palms clapped one another with the eerie silence of conspiracy. The world looked away as both - international financial institutions and corrupt regimes - robbed their constituencies blind. This was perceived to be the inevitable moral cost of stability. Survival of the majority entailed the filthy enrichment of the minority.

And the west acquiesced.

But this grand design backfired. Like insidious bacteria, corruption breeds violence and hops from host to host. It does not discriminate, this plague of black conscience, between east and west. As it infected the indigenous, it also effected their guardians. They were all engulfed by raging greed, by a degradation of the inhibitions and by the intoxicating promiscuity of lawlessness. Inebriated by their newly found powers, little ceasars - natives and financial colonialists - claimed their little plots of crime and avarice, a not so secret order of disintegration of the social fabric. A ghoulish landscape, shrouded in the opaque mist of the nomenclature, the camaraderie of the omnipotent.

And corruption bred violence. The Chicago model imported lock, stock and the barrel of the gun. Former cronies disappeared mysteriously, bloated corpses in stale hotel rooms - being the only "contracts" honoured.

Territories were carved up in constant, unrelenting warfare. One billion dollars are worth a lot of blood and it was spilled with glee, with the enthusiasm of the inevitable, with the elation of gambling all on a single spin of the Russian roulette.

It is this very violence that the west tried to drown with its credits. But unbeknownst to it, this very violence thrived on these pecuniary fertilizers. A plant of horrors, it devoured its soil and its cultivators alike. And 120,000 people paid with their lives for this wrong gamble.

Counting its losses, the west is poised to spin the wheel again. More money is amassed, the dies are cast and more people cast to die.

XLVII. The Honorary Academic Higher Education for Sale

In Countries in Transition from Communism

Mira Markovic is an "Honorary Academic" of the Russian Academy of Science. It cost a lot of money to obtain this title and the Serb multi-billionnaire Karic was only too glad to cough it up. Whatever else you say about Balkan cronies, they rarely bite the hand that feeds them (unless and until it is expedient to do so). And whatever else you say about Russia, it adapted remarkably to capitalism.

Everything has a price and a market. Israel had to learn this fact the hard way when Russian practical-nurse-level medical doctors and construction-worker-level civil engineers flooded its shores. Everything is for sale in this region of opportunities, instant education inclusive.

It seems that academe suffered the most during the numerous shock therapies and transition periods showered upon the impoverished inhabitants of Eastern and Central Europe. The resident of decrepit communist-era buildings, it had to cope with a flood of eager students and a deluge of anachronistic "scholars". But in Russia, the CIS and the Balkans the scenery is nothing short of Dantesque.

Unschooled in any major European language, lazily content with their tenured positions, stagnant and formal - the academics and academicians of the Balkans are both failures and a resounding indictment of the rigor mortis that was socialism. Economics textbooks stop short of mentioning Friedman or Phelps. History textbooks should better be relegated to the science fiction shelves. A brave facade of self sufficiency covers up a vast hinterland of inferiority complex fully supported by real inferiority. In antiquated libraries, shattered labs, crooked buildings and inadequate facilities, student pursue redundant careers with the wrong teachers.

Corruption seethes under this repellent surface. Teachers sell exams, take bribes, trade incestuous sex with their students. They refuse to contribute to their communities.

In all my years in the Balkans, I have yet to come across a voluntary act - a single voluntary act - by an academic.

And I have come across numerous refusals to help and to contribute. Materialism incarnate.

This sorry state of affairs has a twofold outcome. On the one hand, herds of victims of rigidly dictated lectures and the suppression of free thought. These academic products suffer from the twin afflictions of irrelevance of skills and the inability to acquire relevant ones, the latter being the result of decades of brainwashing and industrial educational methods. Unable to match their anyhow outdated knowledge with anything a modern marketplace can offer - they default on to menial jobs, rebel or pull levers to advance in life. Which leads us to the death of meritocracy and why this region's future is behind it.

In the wake of the downfall of all the major ideologies of the 20th century - Fascism, Communism, etc. the New Order, heralded by President Bush, emerged as a battle of Open Club versus Closed Club societies, at least from the economic point of view.

All modern states and societies must choose whether to be governed by merit (meritocracy) or by the privileged few (oligarchy). It is inevitable that the social and economic structures be controlled by elites. It is a complex world and only a few can master the knowledge it takes to govern effectively. What sets meritocracy apart is not the number of members of its ruling (or leading) class, usually no larger than an oligarchy. No, it is distinguished by its membership criteria and by the mode of their application.

The meritocratic elite is an open club because it satisfies three conditions: 1. The process and rules of joining up (i.e., the criteria) are transparent and widely known. 2. The application and membership procedures are uniform, equal to all and open to continuous public scrutiny and criticism. 3. The system alters its membership requirements in direct response to public feedback and to the changing social and economic environment.

To belong to a meritocracy one needs to satisfy a series of demands, whose attainment is entirely up to he individual.

And that is all that one needs to do. The rules of joining and of membership are cast in iron. The wishes and opinions of those who happen to comprise the club at any given moment are of no importance and of no consequence. Meritocracy is a "fair play" by rules of equal chance to derive benefits. Put differently, is the rule of law.

To join a meritocratic club, one needs to demonstrate that one is in possession of, or has access to, "inherent" parameters, such as intelligence, a certain level of education, a potential to contribute to society. An inherent parameter must correspond to a criterion and the latter must be applied independent of the views and predilections of those who sometimes are forced to apply it. The members of a committee or a board can disdain an applicant, or they might wish not to approve a candidate.

Or they may prefer someone else for the job because they owe her something, or because they play golf with him.

Yet, they are permitted to consider only the applicant's or the candidate's "inherent" parameters: does he have the necessary tenure, qualifications, education, experience? Does he contribute to his workplace, community, society at large? In other words: is he "worthy" or "deserving"? Not WHO he is - but WHAT he is.

Granted, these processes of selection, admission, incorporation and assimilation are administered by mere humans and are, therefore, subject to human failings. Can qualifications be always judged "objectively, unambiguously and unequivocally"? Can "the right personality traits" or "the ability to engage in teamwork" be evaluated "objectively"? These are vague and ambiguous enough to accommodate bias and bad will.

Still, at least appearances are kept in most cases - and decisions can be challenged in courts.

What characterizes oligarchy is the extensive, relentless and ruthless use of "transcendent" (in lieu of "inherent") parameters to decide who will belong where, who will get which job and, ultimately, who will enjoy which benefits.

The trouble with transcendent parameters is that there is nothing much an applicant or a candidate can do about them. Usually, they are accidents, occurrences absolutely beyond the reach or control of those most affected by them. Race is such a transcendent parameter and so are gender, familial affiliation or contacts and influence.

In many corners of the globe, to join a closed, oligarchic club, to get the right job, to enjoy excessive benefits - one must be white (racism), male (sexual discrimination), born to the right family (nepotism), or to have the right political (or other) contacts (cronyism). And often, belonging to one such club is the prerequisite for joining another.

In France, for instance, the whole country is politically and economically run by graduates of the Ecole Normale d'Administration (ENA). They are known as the ENArques (=the royal dynasty of ENA graduates).

The privatization of state enterprises in most East and Central European countries provided a glaring example of oligarchic machinations. In most of these countries (the Czech Republic, Macedonia, Serbia and Russia are notorious examples) - state companies, the nation's only assets, were "sold" to political cronies, creating in the process a pernicious amalgam of capitalism and oligarchy, known as "crony capitalism" or privateering. The national wealth was passed on to the hands of relatively few, well connected, individuals, at a ridiculously low price. The nations involved were robbed, their riches either squandered or smuggled abroad.

In the affairs of humans, not everything falls neatly into place. Take money, for instance. Is it an inherent parameter or an expressly transcendent one? Making money indicates the existence of some merit, some inherent advantageous traits of the money-making individual. To make money consistently, a person needs to be diligent, resilient, hard working, to prevail and overcome hardships, to be far sighted and to possess a host of other - universally acclaimed - traits. On the other hand, is it fair when someone who made his fortune through corruption, inheritance, or luck - be preferred to a poor genius? That is a contentious issue. In the USA money talks.

Being possessed of money means being virtuous and meritorious. To preserve a fortune inherited is as difficult a task as to make it in the first place, the thinking goes.

Thus, the source of the money is secondary.

An oligarchy tends to have long term devastating economic effects.

The reason is that the best and the brightest - when shut out by the members of the ruling elites - emigrate. In a country where one's job is determined by his family connections or by influence peddling - those best fit to do the job are likely to be disappointed, then disgusted and then to leave the place altogether.

This is the phenomenon known as "Brain Drain". It is one of the biggest migratory tidal waves in human history.

Capable, well-trained, educated, young people leave their oligarchic, arbitrary, influence peddling societies and migrate to less arbitrary meritocracies (mostly to be found in what is collectively known as "The West").

This is colonialism of the worst kind. The mercantilist definition of a colony is a territory which exports raw materials only to re-import them in the form of finished products. The Brain drain is exactly that: the poorer countries are exporting raw brains and buying back the finished products masterminded, invented and manufactured by theses brains.

Yet, while in classical colonialism, the colony at least received some recompense for its goods - here the poor country is actually the poorer for its exports. The bright young people who depart (most of them never to return) carry with them an investment of the scarce resources of their homeland - and award it to their new, much richer, host countries. This is an absurd situation, a subsidy granted reluctantly by the poor to the rich. This is also one of the largest capital transfers (really capital flight) in history.

Some poor countries understood these basic, unpleasant, facts of life. They extracted an "education fee" from those emigrating. This fee was supposed to, at least partially, recapture the costs of educating and training the immigrants. Romania and the USSR imposed such levies on Jews emigrating to Israel in the 1970s. Others despairingly regard the brain drain as a natural catastrophe. Very few countries are trying to tackle the fundamental, structural and philosophical flaws of the system, the roots of the disenchantment of those who leave.

The Brain Drain is so serious that some countries lost up to a third of their total young and educated population to it (Macedonia in South-eastern Europe, some less developed countries in South East Asia and in Africa). Others were drained of almost one half of the growth in their educated workforce (for instance, Israel during the 1980s).

Brains are an ideal natural resource: they can be cultivated, directed, controlled, manipulated, regulated.

They are renewable and replicable. Brains tend to grow exponentially through interaction and they have an unparalleled economic value added. The profit margin in knowledge and information related industries far exceeds anything common to more traditional, second wave, industries (not to mention first wave agriculture and agribusiness).

What is even more important: Poor countries are uniquely positioned to take advantage of this third revolution. With cheap, educated workforce - they can monopolize basic data processing and telecommunications functions worldwide. True, this calls for massive initial investments in physical infrastructure.

But the important input is the wetware, the brains. To constrain them, to disappoint them, to make them run away, to more merit-orientated places - is to sentence oneself to a permanent disadvantage and deprivation.

This is what the countries in the Balkans are doing.

Driving away the best part of their population by encouraging the worst part. Abandoning their future by dwelling on their past. Caught in a fatal spider web of family connections and political cronyism of their own design. Their factories and universities and offices and government filled to the brim with third rate relatives of third rate professors and bureaucrats. Turning themselves into third rate countries in a self perpetuating, self feeding process of decline. And all the while eyeing the new and the foreign with the paranoia that is the result of true guilt.

XLVIII. Rasputin in Transition

Frauds and Con-men in Countries in Transition from Communism

The mad glint in his eyes is likely to be nothing more ominous than maladjusted contact lenses. If not clean shaven, he is likely to sport nothing wilder than a goatee.

More likely an atheist than a priest, this mutation of the ageless confidence artist is nonetheless the direct spiritual descendent of Rasputin, the raving maniac who governed Russia until his own execution by Russian noblemen and patriots.

They are to be found in all countries in transition. Wild and insidious weeds, the outcome of wayward pollination by mutated capitalism. They prey on their victims, at first acquiring their confidence and love, then penetrating their political, social and financial structures almost as a virus would: stealthily and treacherously. By the time their quarry wakes up to its infection and subjugation - it is already too late. By then, the invader will have become part of the invaded or its master, either through blackmail or via tempting subornation.

This region of the CEE and the Balkans provides for fertile grounds. It is a Petrie dish upon which cultures of corruption and scandalous conduct are fermented. The typical exploiter of these vulnerabilities is a foreigner.

Things foreign are held in awe and adulation by a populace so down trodden and made to feel inferior in every way, not least by foreign tutors and advisors. The craving to be loved, this gnawing urge to be accepted, to be a member of the club, to be distinguished from one's former neighbours - are irresistible. The modern Rasputin doles out this unconditional acceptance, this all encompassing affinity, the echoes of avuncularity. In doing so, he evokes in the recipients such warmth, such relief, such fervour and reciprocity - that he becomes an idol, a symbol of a paradise long lost, a golden braid.

Having thus completed the first phase of his meticulous attack - he moves on to the second chapter in this book of body snatching.

Armed with his new-fangled popularity, the crook moves on and leverages it to the hilt. He does so by feigning charity, by faking interest, by false "constructive criticism". To his slow forming army, he recruits the media, the flower children, the bleeding hearts, reformers, dissidents and the occasional freak. By holding old authority in disdain, by declaring his contempt for the methods of the "tried and true", by appearing to make war upon all rot and immorality - this creature of expediency emerges as a folk hero. It is the more cynical and world weary and "sophisticated" members of society that lead the way, succumbing to his ardour and conviction, to his child-like innocence, to his unwavering agenda. He cleverly thrusts at them the double edge of their own disillusionment and disappointment. Thus mirrored, they are transformed and converted into his camp of renewal and clean promises by this epiphany. They hand him the keys to every medium, the very codes and secrets that make him so powerful. They pledge their alliance and allegiance and render to him the access they possess to the nerve centres of society. The castle gates thus opened from inside, his victory assured, the rogue moves on to consummate this unholy marriage between himself and the deceived.

Always in fear of light, he surreptitiously and cunningly begins to interact with the foci of power and money in the land. However loathsome he is to them, however repulsive the experience, however undesirable the effects of their surrender - they are made to recognize him as their equal. With the might of the media and a large part of the people behind him, he can no longer be ignored.

Their conspiracy-prone mind, awash with superstitions and its attaching phobias, tries to comprehend his meteoric rise, the forcefulness with which he treads, his unmitigated, inane, self confidence. Is he a spy? A member of a secret order? The latent agent of a hyperpower? The heart of a world conspiracy? Has he no fear of retribution and no remorse? Before this great unknown, they kneel and yield, an atavistic reaction to atavistic fears. Now all doors are thrown open, all deals are made available, all secrets are revealed. The more he learns, the mightier he becomes - the more his might, the more he learns. To him, a virtuous cycle, to his hosts - a vicious one.

In all this tumult, he does not lose sight of his original goals - power, money, fame, all three. It is a relentless pursuit, an obsessive hunt, a ruthless and unscrupulous chase. In his war, no prisoners are taken, no price too dear, no human in his orbit left untouched. He will manipulate and threat and beg and promise and plead and blackmail and extort to accomplish that which he set out to achieve: decision making powers, wealth, clout, exposure and resultant fame. It is at this stage that the latter day Rasputin emerges from the shadows and joins officialdom or concludes lucrative transactions based on favourably deflated prices and insider dealing. By now, his shady past is no longer a hindrance. His prowess far exceeds his invidious biography. Well installed, he ignores both media and the people. He brushes aside contemptuously all criticism and enquiry. His true, narcissistic, face is exposed and it is hideous to behold.

But there is nothing to be done and all resistance is futile.

The con-man now is in a haste to maximize his hard earned profits and exit the scene, on his way to another realm of guile and naivet.

XLVIX. The Eureka Connection

How East and Central Europeans Defraud the Gullible West

A common, guttural cry of "Eureka" echoed as the peoples of East Europe and the Balkan emerged from the Communist steam bath. It was at once an expression of joy and disbelief. That the West should be willing to bankroll the unravelling of a failed social experiment, freely entered into, exceeded the wildest imaginings. That it would do so indefinitely and with no strings attached was a downright outlandish fortuity.

Transition in the post communist countries was coupled with a hubristic and haughty conviction in the transforming powers of the Western values, Western technology, and Western economics. The natives - awe struck and grateful - were supposed to assimilate these endowments and thus become honorary Westerners ("white men"). Where osmosis and immitation failed - bayonets and bombs were called upon. These were later replaced by soft credits and economic micromanagement by a host of multilateral institutions.

Accustomed to Pavolvian interactions, adept at manipulating "the system", experts in all manner of make belief - the shrewd denizens of the East exercised the reflexive levers of the Great Democracies. They adopted stratagems whose sole purpose was to extract additional aid, to foster a dependency of giving, to emotionally extort. In one sentence: they learned how to corrupt the donors.

The most obvious subterfuge involved the mindless repetition of imported mantras. Possessed of the same glazed eyes and furled lips, the loyal members of a perfidious nomenklatura uttered with the same seemingly perfervid conviction the catechism of a new religion.

Yesterday communism - today capitalism, unblushingly, unhesitatingly, cynically. Yesterday, a recondite dictatorship of the proletariat or, more often, a personality cult - today "democracy". Yesterday - brotherhood and unity, today - genocidal "self determination". Yesterday - genocidal inclinations, today - a "growth and stability pact". If required to bark in the nude in order to secure the flow of unsupervised funding (mainly to their pockets), these besuited "gentlemen" would have done so with self- sacrificial ardour, no doubt.

When it dawned upon them that the West is willing to pay for every phase of self-betterment, for every stage of self- improvement, for every functioning institution and law passed - this venal class (the soi-disant "elite" in government, in industry and academe) embarked on a gargantuan blackmail plot. The inventors of the most contorted and impervious bureaucracies ever, have recreated them. They have transformed the simplest tasks of reform into tortuous, hellish processes, mired in a miasma of numerous committees and deluged by cavils, captious "working" papers and memoranda of stupefying trumpery. They have stalled and retraced, reversed and regressed, opined and debated, refused and accepted grudgingly. The very processes of transformation and transition - a simulacrum to begin with - acquired an aura of somnolent lassitude and the nightmarish quality of ensnarement. And they made the West bribe them into yielding that which was ostensibly in their very own interest. Every act of legislation was preceded and followed by dollops of foreign cash. Every ministry abolished was conditioned upon more aid. Every court established, every bloodletting firm privatized, every bank sold, every system made more efficient, every procedure simplified, every tender concluded and every foreign investor spared - had a tariff. "Pay or else ..." was the overt message - and the West preferred to pay and to appease, as it has always done.

The money lavished on these "new democracies" was routed rather conspicuously into the private bank accounts of the thin layer of vituperable "leaders", "academics" and "businessmen" (often the same people). One third cigarette smugglers, one third uncommon criminals and one third cynical con-artists, these people looted the coffers of their states. The IMF - this sanctuary of fourth rate economists from third world countries, as I am never wont of mentioning - collaborated with the US government, the European Union and the World Bank in covering up this stark reality. They turned a common blind eye to the diversion of billions in aid and credits to mysterious bank accounts in dubious tax havens. They ignored fake trading deals, itinerant investment houses, shady investors and shoddy accounting. They expressed merely polite concern over blatant cronyism and rampant nepotism. They kept pouring money into the rapidly growing black hole that Eastern Europe and the Balkan have become. They pretended not to know and feigned surprise when confronted with the facts. In their complicity, they have encouraged the emergence of a criminal class of unprecedented proportions, hold and penetration in many of the countries within their remit.

To qualify to participate in this grand larceny, one needed only to have a "sovereign" "state". Sovereign states are entitled to hold shares in multilateral financial institutions and to receive international aid and credits. In other words: sovereignty is the key to instant riches. The unregenerate skulks that pass for political parties in many countries in East Europe and the Balkan (though not in all of them - there are exceptions), carved up the territory.

This led to a suspicious proliferation of "republics", each with its own access to international funds. It also led to "wars" among these emergent entities.

Recent revelations regarding the close and cordial co- operation between Croatia's late president, Franjo Tudjman and Yugoslavia's current strongman, Slobodan Milosevic - ostensibly, bitter enemies - expose the role that warfare and instability played in increasing the flow of aid (both civil and military) to belligerent countries.

The more unstable the region, the more ominous its rhetoric, the more fractured its geopolitics - the more money flowed in. It was the right kind of money: multilateral - not multinational, public - not private, deliberately ignorant - not judiciously cognizant. It was the "quantum fund" - capable of "tunnelling" (as the Czechs called it) - vanishing in one place (the public purse) and appearing in another (the private wallet) simultaneously. Even the exception - the never-enforced sanctions against Yugoslavia - served to enrich its cankerous ruling class by way of smuggling and monopolies.

And why did the West collaborate in this charade? Why did it compromise its goodwill, its carefully crafted institutions, its principles and ethos? The short and the long of it is: to get rid of a nuisance at a minimal cost. It is much cheaper to grease the palms of a deciding few - than to embark on the winding path of true and painful growth.

It is more convenient to co-opt a political leader than to confront an angry mob. It is by far easier to throw money at a problem than to solve it.

It was not a sinister conspiracy of the Great Powers as many would have it. Nor was it the result of foresight, insight, perspicacity, or planning. It was a typical improvident European default, adopted by a succession of lacklustre and lame American administrations. It enriched the few and impoverished the many. It fostered anti- Western sentiments. It provoked skirmishes that provoked wars that led to massacres. To reverse it would require more resources than should have been committed in the first place. These are not forthcoming. The West is again misleading and deceiving and collaborating to defraud the peoples of these unfortunate netherlands. It again promises prosperity it cannot deliver, growth it will not guarantee and stability it cannot ensure. This prestidigitation is bound to lead to ever larger bills and to the attrition of good will of both donor and recipient.

Never before was such a unique historical opportunity so thoroughly missed. The consequences may well be as unprecedented.

L. The Treasure Trove of Kosovo

Nothing like a juicy, photogenic human catastrophe to enrich corrupt politicians and bottom-line-orientated, stock-option-motivated corporate executives. The Balkan is teeming with both these sad days.

Even as the war was raging, shortages of food and other supplies led to the dispensation of political favours (in the form of import licences, for instance) to the chosen few.

Bulgarian, Greek and Albanian firms, owned by ruthless criminals and criminals-turned-politicians benefited mightily. Millions were made and shared as artificially high prices were maintained by various means while cronies and crime controlled firms shared the spoils. This orgiastic intercourse between the corrupt and the criminal was not confined to one country. The whole region partook in robbing the most impoverished populations in Europe by "legal" means.

Their more refined and perfumed Western brethren were never far behind in taking advantage of American largesse on the one hand and re-emerging alarmist tendencies, on the other. Thus, American, German, Greek, French and Italian firms enjoyed funds allocated to international humanitarian aid by the likes of the US government, the United Nations, the World Bank, the IMF and other long arms of the American octopus. Defence contractors and the dubious characters known as weapons intermediaries stoked the atavistic fires of war in securing defence contracts. And aid workers resided in six star hotels, driving the latest sports utility vehicles and brandishing futuristic laptop computers as they went about the business of dispensing aid. In the meantime, at least one half of all aid money was pilfered - not to use a harsher term. Aid rations were freely available in Macedonian, Albanian, Greek and Bulgarian markets - offered at a discount by aid workers who stole them from their supposed recipients. The refugees were never given mattresses, were short of blankets, water, showers and toilets (I visited the camps - this is an eyewitness account). Only bread was abundant.

Now that the war is over, some people are counting their dead - while others are counting their blessings. But this has all been a prelude. It is the next wave of aid which is the main course in this bacchanalia. Outlandishly feverish numbers are tossed around. Kosovo's immediate reconstruction (housing and infrastructure) will require well over 2 billion US dollars in the next 2 years. Of this, 1.5 billion dollars has already been raised. A further 2 billion USD is slated as direct aid to the shattered economies of Macedonia and Albania. But the real booty lies in Serbia. A minimum of 10-13 billion dollars will be required simply to restore Serbia's infrastructure to its former, inglorious self. To resuscitate the whole languishing area, a staggering 30 billion dollars is touted as the minimal bill.

Rest assured that at least one third of this generous cornucopia will end up lining the pockets of the rich and mighty. At least 1 billion dollars will end up festering in Swiss, Cypriot, South African and Israeli bank accounts.

The politicians know it, the "grupirovki" (business cartels controlled by mafia-style organizations) know it, Western governments know it. This is the REAL stability pact.

Financially inebriated politicians are better motivated to maintain peace and stability, or so the thinking goes.

The history of the Balkans will play a major role in determining the topography and geography of this flood of cronyism, nepotism, criminality and vice. The Balkan is composed of states run by crime organizations and crime organizations run by states. Old alliances last long (as opposed to the Middle East where alliances, dune-like, shift with the winds). Bulgaria and Macedonia, for instance. Serbia and Greece. Albania and Kosovo. And now Albania and Macedonia. Meetings of regional "leaders" in the Balkans were always reminiscent of scenes from "The Godfather". The dons, uncomfortably clad in expensive business suits and wearing golden rings, deciding life and death and a jovial yet vaguely menacing atmosphere. Only the leaders of the New Balkans are much younger, less experienced, more prone to superstition, extremism and moodiness. The old tension are bound to re-emerge, this time in the employ of business interests. Expect a flare up of animosity between Greece and Macedonia. Despite its Bulgarophile regime, expect uneasy moments between Bulgaria and Macedonia.

And expect an unholy alliance of business interests between Mr. Thaci and his sprawling business empire and the governments of Albania and Macedonia. If not assassinated before, Thaci is definitely the Man to watch.

Young, well educated, ruthless, involved in business (read: corrupt to the core) - an aptly dangerous man in dangerous times.

The problem is that everyone hold high expectations. This is a poor recipe for an amicable carving of the cake of international funding. Macedonia expects to lead the reconstruction effort of Kosovo. It was offended greatly by the decision to base the Kosovo reconstruction agency in Pristina. Greek and Italian firms expect to snatch profits out of the jaws of their near treacherous behaviour during the war. Turkish firms except to be rewarded for the loyalty of Turkey during the same. American and German firms expect to exclude all else in gaining access to American and German (=EU) funds (as they have done in Bosnia). These all are mutually incompatible expectations and they will lead to mutually exclusive behaviour.

Expect some very ugly scenes, including spilt doses of this cheap, red liquid, blood.

Albania, already governed by the ungovernable crime gangs it spawned in the last few years, has formed an alliance with the KLA, never a moral standard-bearer.

This expanded amusement park of drug trafficking, prostitution, weapons smuggling, contraband and much worse is now threatening to take over its more virtuous (though by no means virginal) neighbour, Macedonia. A flare up of hitherto unimaginable brotherly love has indicated this sacrilegious rapprochement. The Macedonian Prime Minister - encumbered by a demanding Albanian coalition partner - has met Thaci and the encounter had all the trappings of a state visit. Soon after senior albanian politicians started talking about a Macedonian recognition of an independent state of Kosovo and an Albanian language university (the reason for student riots just two years before).

To a large extent, the Kosovo war was a gang warfare.

The Serb criminal organization known as Yugoslavia against the Albanian gang known as the KLA. It was a war over turf and lucrative businesses. In what used to be the Third World and moreso in the post-communist countries in transition, criminal activities often accompany "wars of liberation". In Congo, in Sierra Leone, in Chechnyia, in Kashmir - wars are as much about diamonds, oil and opium poppies as about national aspirations. Kosovo is no exception but it was here that the West was duped into intervention. NATO was called upon to arbiter between two crime gangs. There is no end to the mischievous irony of history.

Perhaps the following incidents are more telling than any learned analysis: In late April, the Albanian telecom switched off the roaming facility of cell phones in Albania. Foreigners - including aid workers - had to pay the company 1000 dollars for a special roaming-enabled chip.

Rumour has it that the post of the Chief of Police in the Tirana Airport was "sold" at the beginning of April for an undisclosed amount (presumably 250,000 US dollars).

The reasons: all shippers (including NATO and aid organizations) have to pay enormous kickbacks to airport and customs officials to release their goods.

Most Albanian families charged refugee families an average of 500 DM a month for their accommodation in subhuman conditions. Refugees who could not pay (or who had no relatives in Germany and Switzerland to pay for them) were evicted, often cruelly.

As Serbs were murdering their supposed brothers in Kosovo, Albanian crime gangs laid an oil pipeline (through Lake Shkoder) to Serbia and supplied the Serb army with the oil it was deprived of by NATO.

Welcome to the Balkans.

LI. Milosevic's Treasure Island

Milosevic and his cronies stand accused of plundering Serbia's wealth - both pecuniary and natural. Yet, the media tends to confuse three modes of action with two diametrically opposed goals. There was state sanctioned capital flight. Gold and foreign exchange were smuggled out of Yugoslavia and deposited in other countries. This was meant to provide a cushion against embargo and sanctions imposed on Yugoslavia by the West.

The scale of these operations has been wildly over- estimated at 4 billion US dollars. A figure half as big is more reasonable. Most of the money was used legitimately, to finance the purchase of food, medicines, and energy products. Yugoslavia would have frozen to death had its leaders not have the foresight to act as they did.

This had nothing to do with party officials, cronies, and their family members enriching themselves by "diverting" export proceeds and commodities into private accounts in foreign lands. The culprits often disguised these acts of plunder as sanctions-busting operations. Hence the confusion.

Thirdly, members of the establishment and their relatives were allowed to run lucrative smuggling and black market operations fuelled by cheap credits coerced out of the dilapidated and politicised "banking" system.

As early as 1987, a network of off-shore bank accounts and holding companies was established by Serbia's Communist party and, later, by Yugoslavia. This frantic groping for alternatives reached a peak during 1989 and 1991 and after 1992 when accounts were opened in Cyprus, Israel, Greece, and Switzerland and virtually all major Yugoslav firms opened Cypriot subsidiaries or holding structures. Starting in 1991, the Central Bank's gold (and a small part of the foreign exchange reserves) were deposited in Switzerland (mainly in Zurich). A company by the name of "Metalurski Kombinat Smederevo - MKS" (renamed "Sartid" after its bogus privatisation) was instrumental in this through its MKS Zurich subsidiary. MKS was a giant complex of metal processing factories, headed by a former Minister of Industry and a Milosevic loyalist, Dusko Matkovic. The latter also served as deputy chairman of Milosevic's party.

The lines between party, state and personal fortunes blurred fast. Small banking institutions were established everywhere, even in London (the AY Bank) and conducted operations throughout the world. They were owned by bogus shareholders, out of the reach of the international sanctions regime.

When UN sanctions were imposed in stages (1992-5), the state made sure its export proceeds were out of harm's way and never in sanctions-bound UK and USA banks.

The main financial agent was "Beogradska Banka" and its branch in Novi Sad. In a series of complex transactions involving foreign exchange trades, smuggled privatisation proceeds, and inflated import invoices, it was able to stash away hundreds of millions of dollars. This money was used to finance imports and defray the exorbitant commissions, fees, and costs charged by numerous intermediaries. Yugoslavia (and the regime) had no choice - it was either that or starvation, freezing and explosive social discontent.

Concurrently, a massive and deeply criminalized web of smuggling, illegal (customs-exempt) imports, bribe and corruption has stifled all legal manufacturing and commerce activities. Cigarettes through Montenegro, alcohol and oil through Romania, petrol, other goods (finished and semi-finished) and raw materials from Greece through the Vardar river (Macedonia), absolutely everything through Croatia, drugs from Turkey (and Afghanistan). UN personnel happily colluded and collaborated - for a fee, of course. The export of commodities - such as grain or precious metals (gold, even Uranium) - was granted in monopoly to Milosevic stalwarts. These were vast fiefdoms controlled by a few prominent "families" and Milosevic favourites. It was also immensely lucrative. Even minor figures were able to deposit millions of US dollars in their Russian, Cypriot, Lebanese, Greek, Austrian, Swiss, and South African accounts. The regime leaned heavily on Yugoslav banks to finance these new rich with cheap, soft, and often non- returnable, credits. These were often used to speculate in the frenetic informal foreign exchange markets for immediate windfalls.

The new Yugoslav authorities are likely to be deeply frustrated and disappointed. Most of the money was expended on essentials for the population. The personal fortunes made are tiny by comparison and well-shielded in off-shore banking havens. Milosevic himself has almost nothing to his name. His son and daughter may constitute richer pickings but not by much. The hunt for the Milosevic treasure is bound to be an expensive, futile undertaking.

LII. Macedonia's Augean Stables,

or: Don't Hurry to Invest in Macedonia

In the near past, Macedonia seemed to have been bent on breaking its own record of surrealism. While politicians in other countries in transition from communism and socialism strive to be noticed for not stealing, their Macedonian counterparts, without a single exception, aim to steal without being noticed.

The previous VMRO-DPMNE government (1999-2002), in which Nikola Gruevski, the current Prime Minister, served as Minister of Finance, plundered the country shamelessly. The local papers accused then outgoing prime minister, Ljubco Georgievski - a virtual pauper when he attained power - of owning land and a residential building in the capital's most expensive neighborhood.

The erstwhile Minister of Defense, Ljuben Paunovski, was recently sentenced to 42 months in prison for his pecuniary shenanigans during his tenure. Another leading figure, the former Minister of interior, Ljube Boskovski, is in the dock in the Hague on war crime charges.

Inevitably, VMRO-DPMNE lost power to the SDSM in the heated elections of 2002 and then fractured as its new leader, Gruevski, purged the old guard and installed his own cohorts everywhere.

Then prime minister designate, Branko Crvnkovski (the country's current President whose legitimacy is contested by the Gruevski government), vowed to learn from his party's (SDSM) past mistakes when they venally ruled the land until 1998. In a sudden and politically-motivated resurrection, the high court began scrutinizing the "Okta" deal: the opaque sale of the country's loss-making refinery to the Greeks in 1999. Heads will roll, promised both the election victors (the SDSM) and their Western sponsors.

Nothing happened.

The country's current Governor of the Central bank and then minister of finance, Petar Goshev, a former socialist high-level functionary known for his integrity, announced that his top priority would be to eradicate corruption by instituting structural and legal reforms. His newfound socialist partners - he headed a center-right outfit - found this bizarre ardor unpalatable and promptly kicked him out of office.

Four years later, with Georgievski relegated to the political wasteland, Crvnkovski ensconced in the presidential suite, and his successor, Buckovski a resounding failure, Gruevski's ascent in 2006 was all but secure. It was the SDSM's turn to crumble acrimoniously amid a virulent contest for its leadership. It has never recovered and Macedonia has had no viable opposition ever since.

Macedonia's post-electoral euphoria faded, in July 2006, into arduous coalition-building negotiations replete with arm-twisting by the worried representatives of the "international community".

The country's new VMRO-DPMNE Prime Minister, Nikola Gruevski (36), excluded from his government the party that won the majority of Albanian votes because of its roots in the much-hated Albanian NLA, National Liberation Army, the instigator of the 2001 near-civil-war.

Albanian factions clashed in a chilling reminder of the country's inter-ethnic fragility.

To add to Macedonia's precarious standing, its greenhorn Minister of Foreign Affairs, Antonio Milososki, engaged in intermittent - and utterly avoidable - spats with its neighbor and biggest foreign investor, Greece, virtually guarantee delayed accession to both NATO and the European Union, the much ballyhooed strategic goals of the current administration. Milososki adopted a similarly belligerent and ill-informed stance against Bulgaria, another flanking polity and the newest member of the coveted European club.

Where the government claims great strides is in its uncompromising stance against all forms of malfeasance and delinquency in both the public and the private sectors.

From the army to various municipalities, scandals erupt daily in an atmosphere often bordering on a frenzied, media saturated, witch-hunt.

Gruevski is alleged to have rejected a bribe of 3 million euros (c. 4 million USD) offered to him by a Serb firm.

His government embarked on highly publicized campaigns against illegal construction (the "urban mafia") and other festering nests of corruption.

Alas, Gruevski himself appointed members of his family and innumerable political hacks to senior government positions in a series of blatant acts of nepotism and cronyism decried by the European Union and other watchdogs. Consequently, with one exception (Zoran Stavreski, the talented vice-premier), the government in all echelons is largely made up of utterly inexperienced operators. Plus ca change.

Politics, venality, and terrorism are the sole venues of social mobility in this tiny, landlocked, country of 2 million impoverished people. Immediately following their insurgency, the former terrorists of the Albanian National Liberation - courtesy of Western pressure and the Albanian voters - occupied crucial ministries with lucrative opportunities of patronage of which they are rumored to have availed themselves abundantly.

Comic relief is often provided by bumbling NGOs, such as the International Crisis Group. In 2001, its representative in Macedonia, Edward Joseph, went to Prilep to conduct an impromptu investigation of the thriving cigarette smuggling trade. Posing to the cameras he declared that only the local leaf-rolling plant was not involved in this pernicious line of work.

Macedonia is a hub of expats and consultants in the Balkans. Ante Markovic, an Austria-based former Yugoslav prime minister, who served as an oft-criticized economic advisor to the government until he was dumped, sued Macedonia for $1 million. In 2001-3, the youthful former minister of finance, Nikola Gruevski, was asked by USAID, on behalf of the Serbian-Montenegrin government, to serve as its consultant on matters of reform of the financial system. The author of this article acted as Economic Advisor to Georgievski's government and, later, to Gruevski himself.

But to no avail. The country is a shambles. In the wake of a civil war, the official unemployment rate is 31-35 percent. Close to 70,000 people work in the bloated central and local administrations. The trade deficit is an unparalleled 17 percent of GDP. In 2001, the budget deficit climbed to 5 percent, though it was since halved. "The Heritage Foundation" has consistently ranked Macedonia 95-97 out of 155 countries in terms of economic freedom. The country is "mostly unfree" it correctly concludes in its reports, though it cites sometimes erroneous data. A moderate level of trade protectionism, low tax rates, moderate inflation, a moderate burden of the government, moderate barriers to capital flows and foreign investment, and moderate interference in the economy are offset by a dysfunctional banking system, intervention in wages and prices, low level of protection of property, a high level of regulation, and a very high level of activity of the black market.

Owing to the IMF's misguided emphasis on exchange rate stability, the currency is inanely overvalued. The manufacturing sector has all but evaporated. Industrial production declined by a vertiginous 20 percent in August 2002 compared to the average the year before - or by 11 percent year on year. The trend has not been reversed since.

Macedonian steel is exempt from the latest bout of American protectionism, but not so its textile industry.

Europe is fending off the country's agricultural products.

People make their meager and desultory living catering to the needs of an ever-expanding international presence or dabbling in illicit activities. Piracy of intellectual property, for instance, is thought to yield c. 1 percent of GDP.

Close to half the population is under the poverty line. The number of welfare cases increased by 70 percent between 1994 and 2002. Generous and incessant multilateral and bilateral credits sustain the faltering economy (and line politicians' ever-deepening pockets). The country is alternately buffeted by floods and droughts. There has been only one day of rain in all of January 2007.

In a much-touted donor conference after the 2001 skirmishes, the pledges amounted to a whopping 15 percent of GDP. Then governor of the central bank, Ljube Trpski (currently detained for his role in a murky affair involving the country's foreign exchange reserves), cheerfully predicted that these handouts will cover the gaping hole in the balance of payments.

Macedonia also received 7.5 percent of the gold reserves of the former federated Yugoslavia of which it was a component. At between $700 million and one billion USD net, foreign exchange reserves are at an all-time high.

Macedonia has recently decided to prepay its $104 million debt to the Paris Club creditors.

Both the IMF and the World Bank, who did their best to obstruct the previous VMRO-DPMNE government in its last few months in power, promised a speedy return to business as usual. An hitherto elusive standby arrangement is likely to be concluded by the end of the year. World Bank funds, frozen in material breach of its written contracts with the state, will flow again. The EU promised development funds if the new government acts in a "European spirit" - i.e., obeys the diktats of Brussels.

The incoming administration is likely to enjoy a period of grace with both the trade unions and international creditors. Strikes and demonstrations by dispossessed miners and underpaid railways workers have waned. But Macedonia joined the WTO in 2002 and will thus be forced to open even more to devastating competition.

Labor unrest is likely to re-erupt soon.

Foreign investment in the country mysteriously wanes and waxes - some of it laundered money reinvested in legitimate businesses. The government is doing a great job of building up the image of Macedonia as an FDI (Foreign Direct Investment) destination. But public relations and perceptions management must be followed by palpable actions and the new government is woefully short on concrete steps. It talks the talk but hitherto does not walk the walk.

The government's attempts to attract foreign investors by introducing lower taxes may backfire: studies clearly evince that multinationals worry less about taxation and more about functioning institutions, a commodity that Macedonia is irreparably short of. Moreover, vanishingly lower taxes signal desperation and Macedonia indeed sounds more desperate than confident. No one wants to buy the country's leading bank, long on offer. Only one contender (Mobilkom Austria) entered a bid for Macedonia's third operator cellular network licence.

On a few occasions, domestic firms, using international fronts, have bid for local factories, such as the textile plant "Astibo". The national payment card project has been guzzled by two banks incestuously close to the outgoing ruling party, VMRO-DPMNE.

But there are real investments, too. The capital's central heating utility was purchased by a unidentified French energy outfit, announced the general manager. The utility's shares were listed in the Athens stock exchange.

The Macedonian construction firm "Granit" will build a $59 million highway in Ukraine, with which Macedonia enjoyed an unusually cordial relationship, to American chagrin. Johnson Controls and others are eying a string of free trade zones and infrastructure projects (dams, roads, railways, oil pipeline). A much hyped Vardar Silicone Valley is in the works.

The contentious census in the first two weeks of November 2002, a part of the "Ohrid Framework Agreement" which ended the internecine fighting the year before, was conducted fairly. The count showed that Albanians make c. one quarter of the population rather than one third, as most Albanians spuriously insisted.

But, with Kosovo's independence looming across the border, the restive Albanians are likely to coerce the enfeebled Macedonia into translating this numerical reality into political and economic clout. The Macedonians are likely to resist. The West will intervene.

Macedonia is facing a hot spring and a sizzling summer.

LIII. The Macedonian Lottery

Every conflict has its economic moments and dimensions.

The current conflict in Macedonia perhaps even more so.

The USA and its Western allies regard Macedonia as a bridge between Greece, Bulgaria, Serbia and Albania.

Hence the EU's plans for the revival of transport corridors 8 and 10 connecting these countries. If all goes well (and nothing has hitherto), railways will connect Bulgaria to Macedonia and river traffic will flow to Serbia from its southern neighbours. All this is envisioned in the Stability Pact. There are talks of an oil pipeline across Macedonia's territory. A pacified Macedonia is fairly crucial to Serbia's recovery and to the prospects of the whole region to attract FDI.

NATO is afraid of Turkish-Greek clashes in the aftermath of Kosovo and Macedonia. Turkey has increasingly cast itself in its ancient role of "protector of the Balkan Muslims". Greece is the only Orthodox-Christian member of the EU and an old foe of the erstwhile Sick Man of Europe from which it won bloody independence at the beginning of the 19th century. Such clashes are likely to destabilize the southern flank of NATO and block the West's access to Iraq, the Middle East, oil-rich Central Asia, and northern China. This will seriously dent the new "Pacific and Middle East Orientations" of the Bush Administration.

And what about the actual combatants? Albanians and Macedonian crime gangs (in cahoots with kleptocratic and venal local politicians) regard Macedonia as a vital route for drugs, stolen cars, smuggled cigarettes and soft drinks, illegal immigrants, white slavery, and weapons dealing. These criminal activities far outweigh the GDP of all the adversary states combined. This conflict is about controlling territory and the economic benefits attendant to such control.

Crime and war provide employment, status, regular income, perks, and livelihood to many denizens of Macedonia, Albania, and Bulgaria. They constitute an outlet for entrepreneurship, however perverted. Fighting for the cause and smuggling often means travel abroad (for instance, on fund raising missions), five star accommodation, and a lavish lifestyle. It also translates into powers of patronage and excesses of self-enrichment.

Moreover, in ossified, socially stratified, ethnically polarized, and economically impoverished societies, war and crime engender social mobility. The likes of Hashim Thaci, Ramush Harajdini, and Ali Ahmeti often start as rebels and end as part of the cosseted establishment. Many a criminal dabble in politics and business.

Hence the tenacity of both phenomena. Hence the bleak and pessimistic outlook for this region. The "formal" economies simply cannot compete. Jobs are not created, the educated are often bitterly idle, salaries are minuscule if paid at all, the future is past. Crime and politics (one and the same in the Balkan) are alluring alternatives.

Moreover, the NLA and its political successor DUI is not a monolithic entity. It is more like an umbrella organization with serious and fracturing differences of opinion regarding the ultimate goals of the insurrection four years ago (2001) and the means to obtain these goals.

Roughly, NLA was made up of one third veteran Kosovo fighters, some of them professional soldiers, who also fought in Croatia, or in the Foreign Legion. These people are bitter and disgruntled by what they see as the betrayal of the West in refusing to guarantee an independent Kosovo and the failure of the current Kosovar leadership to integrate them economically into the emerging polity there. Their motives for joining the fighting in Macedonia were part emotional and part pecuniary.

Another third was made of unemployed, young Albanians, mainly from Macedonia itself. Their fighting is self- interested. They get a monthly salary and perks and, lacking education and skills, they don't have much of a choice outside the killing fields.

The rest are diehard, hardcore, idealists who either fervently espouse a Great Albania, or would like to take over Western Macedonian in a "constitutional coup" which will grant them their own police force, municipalities, institutions, universities, budgets, and semi-political structures.

The NLA itself was not directly involved in criminal activities, though a few of its members are. But the money that financed it (from the Czech Republic, Switzerland, Germany, and the USA) is tainted by drug dealing, white slavery, illegal immigration, and the smuggling of everything illicit, from cigarettes to stolen cars, to weapons. In this they collaborate with politicians and criminals in Macedonia - both Albanian and Macedonian.

Being a politician in the Balkan is an extremely lucrative proposition. Both Albanian and Macedonian politicians will abandon the peace process if they believe it leads to electoral ruin. Given the current atmosphere, it pays to be a pacifist. Virulent nationalism is a guaranteed vote loser. But every re-election ticket still requires a modicum of xenophobia, ethnic exclusivity, and radicalism. Here lies the future.

LIV. Crime Fighting Computer Systems and Databases

As crime globalizes, so does crime fighting. Mobsters, serial killers, and terrorists cross state lines and borders effortlessly, making use of the latest advances in mass media, public transportation, telecommunications, and computer networks. The police - there are 16,000 law enforcement agencies in the Unites States alone - is never very far behind.

Quotes from the official Web pages of some of these databases: National Center for the Analysis of Violent Crime (NCAVC) Its mission is to combine investigative and operational support functions, research, and training in order to provide assistance, without charge, to federal, state, local, and foreign law enforcement agencies investigating unusual or repetitive violent crimes. The NCAVC also provides support through expertise and consultation in non-violent matters such as national security, corruption, and white-collar crime investigations.

It comprises the Behavioral Analysis Unit (BAU), Child Abduction and Serial Murder Investigative Resources Center (CASMIRC), and Violent Criminal Apprehension Program (VICAP).

VICAP is a nationwide data information center designed to collect, collate, and analyze crimes of violence - specifically murder. It collates and analyzes the significant characteristics of all murders, and other violent offenses.

Homicide Investigation Tracking System (HITS) A program within the Washington state's Attorney General's Office that tracks and investigates homicides and rapes.

Violent Crime Linkage System (ViCLAS) Canada-wide computer system that assists specially trained investigators to identify serial crimes and criminals by focusing on the linkages that exist among crimes by the same offender. This system was developed by the RCMP (Royal Canadian Mounted Police) in the early 1990s.

UTAP, stands for The Utah Criminal Tracking and Analysis Project Gathers experts from forensic science, crime scene analysis, psychiatry and other fields to screen unsolved cases for local law enforcement agencies.

International Criminal Police Organization (ICPO) - Interpol's DNA Gateway Provides for the transfer of profile data between two or more countries and for the comparison of profiles that conform to Interpol standards in a centralized database.

Investigators can access the database via their Interpol National Central Bureau (NCB) using Interpol's secure global police communications system, I-24/7.

Interpol's I-24/7 Global communication system to connect its member countries and provide them with user-friendly access to police information. Using this system, Interpol National Central Bureaus (NCBs) can search and cross-check data in a matter of seconds, with direct and immediate access to databases containing critical information (ASF Nominal database of international criminals, electronic notices, stolen motor vehicles, stolen/lost/counterfeit travel and ID documents, stolen works of art, payment cards, fingerprints and photographs, a terrorism watch list, a DNA database, disaster victim identification, international weapons tracking and trafficking in human beings-related information, etc).

Interpol Fingerprints Provides information on the development and implementation of fingerprinting systems for the general public and international law enforcement entities.

Europol (European Union's criminal intelligence agency) Computer System (TECS) Member States can directly input data into the information system in compliance with their national procedures, and Europol can directly input data supplied by non EU Member States and third bodies. Also provides analyses and indexing services. http://www.atg.wa.gov/hits/index.shtml http://www.mass.gov/msp/unitpage/vicap.htm http://www.fbi.gov/hq/isd/cirg/ncavc.htm http://www.rcmp.ca/techops/viclas_e.htm http://www.justicejunction.com/innocence_lost_ian_wing _utap.htm http://www.interpol.int/Public/ICPO/FactSheets/fsADN20 0501.asp http://www.interpol.int/Public/ICPO/FactSheets/i247.asp http://www.europol.eu.int/index.asp?page=facts

T H E A U T H O R

SHMUEL (SAM) VAKNIN

Curriculum Vitae Click on blue text to access relevant web sites - thank you.

Born in 1961 in Qiryat-Yam, Israel.

Served in the Israeli Defence Force (1979-1982) in training and education units.

Education Completed a few semesters in the Technion - Israel Institute of Technology, Haifa.

Ph.D. in Philosophy (major: Philosophy of Physics) - Pacific Western University, California, USA.

Graduate of numerous courses in Finance Theory and International Trading.

Certified E-Commerce Concepts Analyst by Brainbench.

Certified in Psychological Counselling Techniques by Brainbench.

Certified Financial Analyst by Brainbench.

Full proficiency in Hebrew and in English.

Business Experience 1980 to 1983 Founder and co-owner of a chain of computerised information kiosks in Tel-Aviv, Israel. 1982 to 1985 Senior positions with the Nessim D. Gaon Group of Companies in Geneva, Paris and New-York (NOGA and APROFIM SA): - Chief Analyst of Edible Commodities in the Group's Headquarters in Switzerland - Manager of the Research and Analysis Division - Manager of the Data Processing Division - Project Manager of the Nigerian Computerised Census - Vice President in charge of RND and Advanced Technologies - Vice President in charge of Sovereign Debt Financing 1985 to 1986 Represented Canadian Venture Capital Funds in Israel. 1986 to 1987 General Manager of IPE Ltd. in London. The firm financed international multi-lateral countertrade and leasing transactions. 1988 to 1990 Co-founder and Director of "Mikbats-Tesuah", a portfolio management firm based in Tel-Aviv.

Activities included large-scale portfolio management, underwriting, forex trading and general financial advisory services. 1990 to Present Freelance consultant to many of Israel's Blue-Chip firms, mainly on issues related to the capital markets in Israel, Canada, the UK and the USA.

Consultant to foreign RND ventures and to Governments on macro-economic matters.

Freelance journalist in various media in the United States. 1990 to 1995 President of the Israel chapter of the Professors World Peace Academy (PWPA) and (briefly) Israel representative of the "Washington Times". 1993 to 1994 Co-owner and Director of many business enterprises: - The Omega and Energy Air-Conditioning Concern - AVP Financial Consultants - Handiman Legal Services Total annual turnover of the group: 10 million USD.

Co-owner, Director and Finance Manager of COSTI Ltd. - Israel's largest computerised information vendor and developer. Raised funds through a series of private placements locally in the USA, Canada and London. 1993 to 1996 Publisher and Editor of a Capital Markets Newsletter distributed by subscription only to dozens of subscribers countrywide.

In a legal precedent in 1995 - studied in business schools and law faculties across Israel - was tried for his role in an attempted takeover of Israel's Agriculture Bank.

Was interned in the State School of Prison Wardens.

Managed the Central School Library, wrote, published and lectured on various occasions.

Managed the Internet and International News Department of an Israeli mass media group, "Ha-Tikshoret and Namer".

Assistant in the Law Faculty in Tel-Aviv University (to Prof. S.G. Shoham). 1996 to 1999 Financial consultant to leading businesses in Macedonia, Russia and the Czech Republic.

Economic commentator in "Nova Makedonija", "Dnevnik", "Makedonija Denes", "Izvestia", "Argumenti i Fakti", "The Middle East Times", "The New Presence", "Central Europe Review", and other periodicals, and in the economic programs on various channels of Macedonian Television.

Chief Lecturer in courses in Macedonia organised by the Agency of Privatization, by the Stock Exchange, and by the Ministry of Trade. 1999 to 2002 Economic Advisor to the Government of the Republic of Macedonia and to the Ministry of Finance. 2001 to 2003 Senior Business Correspondent for United Press International (UPI). 2007 Associate Editor, Global Politician Founding Analyst, The Analyst Network Contributing Writer, The American Chronicle Media Group Web and Journalistic Activities Author of extensive Web sites in: - Psychology ("Malignant Self Love") - An Open Directory Cool Site, - Philosophy ("Philosophical Musings"), - Economics and Geopolitics ("World in Conflict and Transition").

Owner of the Narcissistic Abuse Study List and the Abusive Relationships Newsletter (more than 6000 members).

Owner of the Economies in Conflict and Transition Study List , the Toxic Relationships Study List, and the Link and Factoid Study List.

Editor of mental health disorders and Central and Eastern Europe categories in various Web directories (Open Directory, Search Europe, Mentalhelp.net).

Editor of the Personality Disorders, Narcissistic Personality Disorder, the Verbal and Emotional Abuse, and the Spousal (Domestic) Abuse and Violence topics on Suite 101 and Bellaonline.

Columnist and commentator in "The New Presence", United Press International (UPI), InternetContent, eBookWeb, PopMatters, Global Politician, eBookNet.org, and "Central Europe Review".

Publications and Awards "Managing Investment Portfolios in States of Uncertainty", Limon Publishers, Tel-Aviv, 1988 "The Gambling Industry", Limon Publishers, Tel-Aviv, 1990 "Requesting My Loved One - Short Stories", Yedioth Aharonot, Tel-Aviv, 1997 "The Suffering of Being Kafka" (electronic book of Hebrew and English Short Fiction), Prague and Skopje, 1998-2004 "The Macedonian Economy at a Crossroads - On the Way to a Healthier Economy" (dialogues with Nikola Gruevski), Skopje, 1998 "The Exporters' Pocketbook", Ministry of Trade, Republic of Macedonia, Skopje, 1999 "Malignant Self Love - Narcissism Revisited", Narcissus Publications, Prague and Skopje, 1999-2007 (Read excerpts - click here) The Narcissism Series (e-books regarding relationships with abusive narcissists), Skopje, 1999-2007 "After the Rain - How the West Lost the East", Narcissus Publications in association with Central Europe Review/CEENMI, Prague and Skopje, 2000 Winner of numerous awards, among them Israel's Council of Culture and Art Prize for Maiden Prose (1997), The Rotary Club Award for Social Studies (1976), and the Bilateral Relations Studies Award of the American Embassy in Israel (1978).

Hundreds of professional articles in all fields of finances and the economy, and numerous articles dealing with geopolitical and political economic issues published in both print and Web periodicals in many countries.

Many appearances in the electronic media on subjects in philosophy and the sciences, and concerning economic matters.

Contact Details: [email protected] My Web Sites: Economy / Politics: http://ceeandbalkan.tripod.com/ Psychology: http://samvak.tripod.com/index.html Philosophy: http://philosophos.tripod.com/ Poetry: http://samvak.tripod.com/contents.html

After the Rain How the West Lost the East

The Book This is a series of articles written and published in 1996-2000 in Macedonia, in Russia, in Egypt and in the Czech Republic.

How the West lost the East. The economics, the politics, the geopolitics, the conspiracies, the corruption, the old and the new, the plough and the internet - it is all here, in colourful and provocative prose.

From "The Mind of Darkness": "'The Balkans' - I say - 'is the unconscious of the world'. People stop to digest this metaphor and then they nod enthusiastically. It is here that the repressed memories of history, its traumas and fears and images reside. It is here that the psychodynamics of humanity - the tectonic clash between Rome and Byzantium, West and East, Judeo- Christianity and Islam - is still easily discernible. We are seated at a New Year's dining table, loaded with a roasted pig and exotic salads. I, the Jew, only half foreign to this cradle of Slavonics. Four Serbs, five Macedonians. It is in the Balkans that all ethnic distinctions fail and it is here that they prevail anachronistically and atavistically.

Contradiction and change the only two fixtures of this tormented region. The women of the Balkan - buried under provocative mask-like make up, retro hairstyles and too narrow dresses. The men, clad in sepia colours, old fashioned suits and turn of the century moustaches. In the background there is the crying game that is Balkanian music: liturgy and folk and elegy combined. The smells are heavy with muskular perfumes. It is like time travel. It is like revisiting one's childhood."

LV. The Author

Sam Vaknin is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East. He is a columnist for Central Europe Review, PopMatters, and eBookWeb , a United Press International (UPI) Senior Business Correspondent, and the editor of mental health and Central East Europe categories in The Open Directory and Suite101 .

Until recently, he served as the Economic Advisor to the Government of Macedonia.

Visit Sam's Web site at http://samvak.tripod.com

End of Project Gutenberg's Financial Crime and Corruption, by Sam Vaknin