Chicago Global

Toward a Theory of Country Size

It is well known that following consolidation, during which it might have looked as if countries were destined to combine into a few supercountries, we entered a period of secession and disintegration, with the number of countries growing.  One puzzle associated with this is why there are so many federations.  What follows is the beginning of a theory of size and confederation - and I look forward to comments before putting this in the form of a full-blown theory.

My starting point is that resources are not spread evenly across regions, so that when one part of a country is rich (as from salt deposits (long ago) or natural harbors or oil reserves), it will prefer to be on its own in order not to share its wealth with a larger group. But of course these pockets of wealth will be vulnerable to attack (trade wars and embargos for starters, but then military invasions too) if they are on their own and not in reliable alliances.  "Optimal" country size is thus about compromising security (which is positively correlated with size) with the cost of sharing valuable resources. Risk averse people might agree on a large country size if they did not know whether they would be rich or poor, but once they discover regional wealth, that region can be expected to be exploited.

At the same time, large scale and central control creates a monopoly on power and that can be bad for everyone.  A federation can be seen as a kind of compromise.  The central government provides security against outsiders, and to a degree manages competition among the member states or regions.  The members are left with enough power to enjoy some of their regional wealth, and they are in the business of competing with one another for mobile citizens, outside investment, and so forth.  It is as if the region, or province, buys security and some insurance (because it might be resource poor in the future) in return for some ability to enjoy its wealth and to gain from the competition among jurisdictions within the federation.

If invasion comes to be seen as politically or even morally unacceptable, or international organizations spring up that succeed in reducing international grabs, then we should expect more independence movements and more sovereign states because there is less need for mutual security.  I am tempted to say that this is where we are in history, except that it is also true that services and human capital have become increasingly important in the creation of wealth. If immobile natural resources are less important than in the past, then we might find less of a drive to smaller states.  Smaller states will continue to provide more competition among jurisdictions, and that is good in the market for political power and policies, but there will likely be less of a gain in terms of excluding outsiders from making tax or ownership claims on valuable resources.  If so, and other things (especially the threat of invasions) constant, we should expect another phase of consolidation.

At the same time, large scale and central control creates a monopoly on power and that can be bad for everyone.  A federation can be seen as a kind of compromise.  The central government provides security against outsiders, and to a degree manages competition among the member states or regions.  The members are left with enough power to enjoy some of their regional wealth, and they are in the business of competing with one another for mobile citizens, outside investment, and so forth.  It is as if the region, or province, buys security and some insurance (because it might be resource poor in the future) in return for some ability to enjoy its wealth and to gain from the competition among jurisdictions within the federation.

If invasion comes to be seen as politically or even morally unacceptable, or international organizations spring up that succeed in reducing international grabs, then we should expect more independence movements and more sovereign states because there is less need for mutual security.  I am tempted to say that this is where we are in history, except that it is also true that services and human capital have become increasingly important in the creation of wealth. If immobile natural resources are less important than in the past, then we might find less of a drive to smaller states.  Smaller states will continue to provide more competition among jurisdictions, and that is good in the market for political power and policies, but there will likely be less of a gain in terms of excluding outsiders from making tax or ownership claims on valuable resources.  If so, and other things (especially the threat of invasions) constant, we should expect another phase of consolidation.

Employees’ Misperception about their Rights

An interesting study shows that employees do not perceive to be employed at will. Pauline T. Kim, Bargaining with Imperfect Information: A Study of Worker Perceptions of Legal Protection in an At-Will World, 83 Cornell L. Rev. 105 (1997). The employees in such studies were presented with several descriptions of discharges of workers, identifying the reason for each discharge, and asking whether these discharges were lawful. The result showed a tendency that employees perceive to be better protected than they actually are by the employment at will doctrine and its exceptions in the respective states. They live under the impression that termination of their employment relationship is possible only for job-related reasons, which resembles much more the for cause rule than the at will doctrine that actually governs their employment. "Workers appear to systematically overestimate the protections afforded by law, believing that they have far greater rights against unjust or arbitrary discharges than they in fact have under an at-will contract." Kim, at 106.

While it seems plausible in many areas that laymen do not know the exact legal rules due to a lack of information, this systematic misperception poses a puzzle. The goal of this blog post is to show to what extend this misperception can be explained by systematic errors and biases tied to the heuristics that employees use to evaluate the degree of their legal protection. Furthermore, I will draw conclusions on what that means for the employment at will doctrine.

In my opinion, the availability heuristic will be influential in the employee’s decision whether a particular discharge was lawful or not. Hereby, the frequency and the probability of an event are assessed by the ease with which instances or occurrences can be brought to mind. Kahneman, Daniel / Slovic, Paul / Tversky, Amos, Judgment under Uncertainty: Heuristics and Biases, Cambridge: Cambridge University Press, 1982, 11. While lawfulness is not the same as the frequency or probability of occurrence of an incident, it seems likely that these two factors will get intermingled by subjects dealing with the questions posed by the study. The average employee will not have any legal training on the doctrines of employment law. He will have to heavily rely on incidents, stories, and assumptions from inside his own sphere of experience. In doing that, the subject of the study will not only evaluate the lawfulness of the discharge in front of him (even if that is all the question is asking for). He will decide this depending on his perception of whether it is generally legally possible to be discharged for that certain trait, behavior, or incident. Not knowing the general rule, he will also include in his assessment the perceived likelihood that a discharge will actually be based on such grounds. Furthermore, he will take into account how likely this will happen to him being guided by his personal assessment of the risk of him being discharged on the several grounds.

While the availability heuristic might be very useful given the limited legal information of the employee, it also has some inherent systematical errors. Whether an incidence comes to mind is not only determined by its frequency or probability, but also by other factors such as salience and recent occurrence. Whether a reason for discharge sticks out in the memory of an employee (e.g. the person was discharged for setting the factory on fire), or whether it is not that salient (e.g. discharge for continuous underperformance) does not say much about the frequency of that reason and its lawfulness. The same is true for recent occurrence. Also the availability heuristic is prone to bias because incidents that are out of sight are also quickly out of mind. Therefore, even arbitrary but rare incidents can be less retrievable in the employees mind.

Another bias that is even more likely lead to systematic error in the employee’s judgment about his legal protection is the optimistic bias (Slovic, 20) and the tendency that people perceive the world in a way that avoids cognitive dissonance (Kahan/Braman, 188). Even if the employee can easily retrieve information about a certain discharge, he might think that it will not happen to him. Furthermore, it is troubling to live in constant awareness of the world violating your own picture of it. And people find it comforting to believe that what is good according to their own set of values is also permitted under the law. In turn, people like to think of behavior inconsistent with their values as unlawful. Employees have their own sense of what grounds they find reasonable for discharge and which reasons for discharge are arbitrary or unjust. They project that vision of a fair employment relationship into what they believe the legal rules for employment to be. This also leads to people assimilating information biased by what their view on the world is. Kahan, Dan M. / Braman, Donald, Cultural Cognition and Public Policy, 2006, 24 Yale Law & Policy Review, p. 151, 156. "Biased assimilation is the tendency to embrace evidence that supports one’s beliefs about the world and reject evidence that is inconsistent with one’s beliefs about the world." Rachlinski, Jeffrey J., The Psychology of Climate Change, 2000 U. Ill. L. Rev. 299). To maintain or increase their own personal self-esteem people often perceive the world in a way that is self-serving. Blasi, Gary /Jost, John, System Justification Theory and Research: Implications for Legal Advocacy and Social Justice, California Law Review Symposium on "Behavioral Realism and Implicit Social Cognition 2006, 15. Therefore, unjust incidents in the experience of an employee might be filtered out as exceptions to the rule and do not stick with the employees memory that much. This ties in with the availability heuristic because the information that passes the "cultural cognition filter" will be easier retrievable in the decision whether a practice is lawful or not.

One might argue that it seems natural for an employee not to project his view of the employment relationship into his beliefs about the legal system, but that he is more likely to be discontent and to exaggerate the inappropriateness of his legal protection. After all, the employee can be seen as the less powerful party in that relationship that might easily feel taken advantage off. (This is at least frequently the rhetoric of union representatives.) However, system justification theory seems to defy that argument. "People want to hold favorable attitudes about themselves and about their own groups, but they also want to hold favorable attitudes about social and political systems that affect them." Blasi, Gary /Jost, John, System Justification Theory and Research, 5. In particular, members of disadvantaged groups are prone to justify the status quo due to a stronger need to reduce dissonance by justifying their suffering and their position in the current system. Blasi, Gary /Jost, John, System Justification Theory and Research, 16.

Finally, employees might use the heuristic of representativeness also incurring systematical errors. Situations are often evaluated by the degree to which one situation resembles another situation. Kahneman, Daniel / Slovic, Paul / Tversky, Amos, Judgment under Uncertainty: Heuristics and Biases, 4. The employee might know about some legal rules that prohibit arbitrary discharges by employers, such as the anti-discrimination in employment rules in Title VII of the Civil Rights Act, the ADEA, and the ADA. These laws, being subject to much public discussion even on newspapers and TV, might also be more available and more easily retrievable to employees. Seeing some prohibitions of arbitrary behavior (e.g. unlawful discharge because of race) the employee might draw the conclusion that other arbitrary behavior (e.g. discharge because the employer does not like the employees brother) is also unlawful. Even if the discharge decisions seem similarly arbitrary, the law does not attach the same consequences to them.

The biggest distortion of the perception of the rights of employees can result from a combination of the above sources of bias. If cultural cognition leads to the predominant assimilation of information about a high level of employee rights, this information will tend to be more easily retrievable under the availability heuristic and than form the basis for comparison under the representativeness heuristic. This way only selected positive experiences, incidents or stories might be the source of evaluation of the lawfulness of the discharges presented in the study by Kim.

The conclusion that Kim draws from her study is that the assumption that employees bargain with employers in full knowledge about their rights does not reflect reality. This casts serious doubts on the argument that the prevalence of employment at will contracts in the real world represents the efficient outcome, reflecting the desires of the parties. Kim, 106, 155.

While I agree with that account, there is another conclusion one can draw from this study and its cognitive explanation behind it. One concern about the employment at will doctrine is that it is unfair and puts the employee at mercy of the employer’s arbitrariness. This will arguably result in a less motivated and therefore less productive workforce. One weakness of this argument is that market pressures constitute a check on arbitrary decisions. The economic self-interest of the employer will urge him to discharge people on economic grounds not and not for arbitrary reasons. But the study of Kim also casts some doubts on the conclusion that employment at will has a demotivating effect on the workforce. The results suggest that the employees feel a level of protection close to their desired protection even if that is not their legal status. Therefore, the employment at will doctrine might be a way to combine a content and motivated workforce with the maximum flexibility of the employer for his discharge decisions.

The creation of the International Court for Cambodia

New Steps towards International Justice

Very significant news for the international human rights community flourished one month ago, when, on March 14th, the United Nations and the government of Cambodia signed a series of multiple agreements for the creation and establishment of the legal foundations for the Extraordinary Chambers in the Courts of Cambodia (ECCC), a special tribunal that will try Khmer Rouge leaders accused of horrific crimes, including mass killings and genocide.

Under these international agreements, a newly created ad hoc trial court and a Supreme Court within the Cambodian legal system will investigate those most responsible for crimes and serious violations of Cambodian and international law between April 17, 1975 and January 6, 1979.

The international community has witnessed that during the last decade, unprecedented steps have been taken to limit the impunity of atrocious war crimes and crimes against humanity. Since the early 1990´s we are witnessing the creation of new international criminal justice mechanisms which apply universal jurisdiction to hold perpetrators of the most serious crimes that the human race has ever committed.

The Security Council created two ad-hoc international criminal tribunals, the International Criminal Tribunal for the former Yugoslavia (ICTY) in 1993 and the International Criminal Tribunal for Rwanda (ICTR) in 1994, to try alleged perpetrators of genocide, war crimes, crimes against humanity, and other serious violations of international humanitarian law that occurred during the outbreak of conflicts in those regions. Both the ICTY and the ICTR have revitalized the international criminal jurisprudence that had not developed since the Nuremberg and Tokyo trials.

Since the creation of both tribunals, hundreds of suspects have been arrested and tried regardless of their official status, leading to the first indictment of a sitting head of state (Slobodan Milosevic by the ICTY), as well as the indictment of the former Prime Minister of Rwanda, Jean Kambanda, by the ICTR.
In 2002, taking a different “hybrid” approach and in an attempt to bring justice in Western Africa, the United Nations signed an agreement with the government of Sierra Leone to create the Special Court for Sierra Leone (SCSL).

With the newly created ECCC, it will be the fourth adhoc UN backed tribunal created during the past 15 years and a great leap from the international human rights perspective. The three-year budget for the ECCC is about $56.3 million, of which $43 million is to be paid by the UN and $13.3 million by the Government of Cambodia.

History will never forget the atrocities that where committed all through the countryside and cities of Cambodia during the years 1975 to 1978, where an estimated 1.7 million people were killed or died of forced labor, starvation or disease (the death toll represented almost one third of Cambodia’s population).

The regimen leader, “Brother Number One” Pol Pot, died in 1998, but others such as “Brother Number Two” Nuon Chea, former head of state Khieu Samphan and former Foreign Minister Ieng Sary are living as free men.

Almost every single Cambodian family lost relatives under the rule of the “back to the land” Khmer Rouge, who emptied the cities and isolated the entire country.

In the near future, national courts will still be not able to become uniformly capable to bring justice for global atrocities and international war crimes. This is particularly true in post-conflict situations where justice systems have been either partially or completely destroyed. As a result, international justice today still remains a crucial last resort that must continue to be fortified against efforts to undermine it.
The achievements and failures of the ICTY and ICTR have been assessed and it has helped the creation of later tribunals such as the SCLS, the East Timor Tribunal, and now the ECCC. While it may be unrealistic to expect that full-scale ad hoc international tribunals will be created in the current environment, the lessons of these tribunals can help initialize other efforts, including the development of hybrid justice mechanisms.

Hybrid mechanisms (such as the ad hoc Tribunal for East Timor and the ECCC) should not be established simply because they are an inexpensive alternative when an international mechanism would be more appropriate. In addition, we need to evaluate situations in which international mechanisms are rejected notwithstanding serious concerns about national capacity and willingness to pursue justice, as in Sierra Leone and probably in Iraq.

Ad hoc tribunals are a welcome step, but not a permanent solution. I believe that if the international community keeps on creating such tribunals, this will lead to delays, primarily because they are established after the fact. It has been proven to be costly and inefficient to create a new institution for each situation. Likewise there have been problems concerning selective justice.

A permanent institution can overcome these defects. In this sense, the International Criminal Court (ICC) has been propelled by strong support from the world community and many NGO´s. The Rome Statute of the ICC has obtained the necessary 60 ratifications and has entered into force on July 1st, 2002. Currently there are 92 states parties, and the list is slowing growing.

On the other hand, the United Nations has to play a more central and systematic role in post-conflict situations. Although the United Nations has often been pivotal in forging the international response to serious human rights crimes, the “justice gap” in countries such as Sierra Leone, Cambodia, Liberia and the Democratic Republic of Congo underscores the need for more systematic U.N. efforts.

The development of a system of international justice to limit impunity for serious human rights crimes has struck at outmoded notions of national sovereignty and the absolute prerogative of states. It would have been unrealistic to expect that progress would occur in a straight line. To address today’s more difficult environment, recent achievements must be secured and the system must be refined so that perpetrators of the most serious crimes are increasingly held to account.

In an everyday more global and interdependent world, the role that international criminal courts play must gain importance and acceptance. The past decade has given us a variety of examples and forms of these international tribunals, in an attempt to bring to justice to any individual that has committed atrocious crimes against humanity.

Has Globalization Become a Stale Cookie?

Something interesting is happening at this very moment in Europe. Something which is likely to teach a valuable and unforgettable lesson about the scope and the destiny of globalization.

The EU common market, the powerful engine behind European Union economic aggregation and growth rests on four fundamental freedoms: the free movement of goods, the free provision of services, the freedom of establishment and the free flow of capitals.

Roughly speaking, free movement of goods means that there are no customs, tariffs or non-tariff barriers between EU Member States. Free provision of services means that anyone who is qualified to provide a service in a Member State can do the same in any other Member State. Freedom of establishment means that sudents, workers and corporations can elect their residence in any Member State without restrictions. Free flow of capitals means that investors may invest their capital in any Member State without nationality-based restrictions.

These fundamental (I would say constitutional) liberties of the European Union are now at jeopardy, due to the new taste of national governments for protectionism. The EU Commission sensed the threat posed to European aggregation and is fighting back to keep the common market open and competitive.

Everything started last summer, when two banks, the Dutch ABN Amro and the Spanish BBVA attempted to take over two Italian banks, respectively Banca Antonveneta and BNL. The Italian banking sector has been traditionally reluctant to host foreign operators and this has also harmed effective competition over the years (Italian bank accounts are the most expensive in Europe!!!!). Once again, like other times in the past, the Bank of Italy stepped in and denied authorization to the takeover bids by the foreign banks.   

The Spanish and the Dutch screamed at the scandal and called the Italians bad names, until the judges in Milan found out that the governor of the Bank of Italy (and some politicians) was colluding with Italian banks to favor them in the bidding and keep Antonveneta and BNL under Italian control. To make a long story short, the governor eventually resigned, a new governor was appointed and the foreign bidders got the green light to jump on the Italian hot chicks. ABN Amro got control of Antonveneta and the French BNP Paribas bought BNL.

Italian media were still flogging the government over its medieval attitude in the circumstance, when the Italian energy giant Enel attempted to purchase the French energy company Suez. In a rapid sequence, however, the French government made it clear that it was not enthusiastic at the idea, got Gaz de France ready to buy Suez, amended the existing French law to allow the Suez-GdF merger and adopted a new statute against foreign takeovers in 'strategic sectors' (i.e. energy, telecoms, defence, etc.).

The French example was followed by Spain and by Poland. The latter, despite being a new Member State, did not want miss its chance to behave badly and opposed to the merger between the Italian bank Unicredit and the German HBV, which had previously been cleared by the EU Commission.

This was too much for the Commission, which opened investigations on these cases, charging the governments of restricting the freedom of establishment of foreign companies on national markets and restricting the free flow of capitals by making national companies less contendible. Proceedings for the infringement of the EC Treaty (providing for such freedoms) have been opened against some 20 Member States, but the most serious charges concern France, Spain and Italy, which are all trying to protect national companies in the energy sector.

The story raises a number of considerations. Globalization has been magnified as a driver for economic development. Jobs and workers' economic and social stability have been scarified on the assumption that globalization is efficiency-driven and makes of flexibility a condition to survival of businesses. Then we find out that globalization works when children manufacture soccer balls at one dollar per day, but miserably fails when it is called upon to liberalize the banking, energy and defense markets, traditionally fertile grounds for anticompetitive practices resulting in consumers' exploitation.