Prof. Arye L. Hillman

Prof.
Prof. Arye L. Hillman
Telephone: 
Fax: 
Office: 
Mail Box Number: 
Office hours: 
Research interests: 
The Political Economy of Public Policy

CV

 

SUMMARY

Arye Laib (Leo) Hillman joined the faculty of Bar-Ilan University in Israel in 1980, where he continues to teach. His undergraduate studies were at from the University of Newcastle in Australia (BA first-class honors and the University Medal). He has a M.Ecs (Hons) degree from Macquarie University and a PhD in economics from the University of Pennsylvania, where he was an economics research fellow for the duration of his studies. He is a joint recipient with Heinrich Ursprung of the Max-Planck Prize for Humanities Sciences and has an honorary doctorate from the University of Genoa.

His field of research is political economy, or the interface between economics and politics. His book ‘The Political Economy of Protection’ (Harwood 1989; reprinted 2001; reissued by reissued by Francis and Taylor in 2013) provided the first comprehensive account of the politics of international trade policy. ‘Public Finance and Public Policy: A Political Economy Perspective on Responsibilities and Limitations of Government’ (Cambridge University Press, 3rd edition 2019) integrates classical public finance with political economy and public choice concepts. He has published some 150 research papers in professional journals and volumes.

He has been an invited professor and has taught at UCLA, Princeton, the University of Paris 1 (Panthéon-Sorbonne), and the Australian National University, and has been an invited fellow of the Japanese Society for the Promotion of Science at Kobe University. He has conducted research under the auspices of the World Bank and International Monetary Fund.

He was born in 1947 in Germany, the only surviving child of holocaust survivors. He and his wife Jeannette have 4 children, 18 grandchildren, and presently four great grandchildren.

--------------------------------------------------------------

PERSONAL AND CAREER INFORMATION

Date of birth: 13 January 1947

Place of birth: Bad Wörishofen, U.S. zone, Germany

Immigration to Australia 1952

Married Jeannette Hillman (née Mann) 1967

Graduate school U.S. 1970-1973

Immigration to Israel 1974

Higher education

PhD Economics, University of Pennsylvania, USA 1970-73 (thesis advisors Albert Ando, Wilfred Ethier)

M. Ecs. (Honors), Macquarie University, Sydney, Australia 1968-70, degree awarded in 1972 (external thesis advisor Peter Lloyd, Australian National University)

B.A., First Class Honors in Economics and the University Medal, University of Newcastle, Australia 1963-67 (honors thesis advisor Paul Sherwood)

Academic position

Bar-Ilan University, Department of Economics, from 1980. Professor of Economics and William Gittes Chair, 1984 -2015, Associate Professor 1982-1984, Senior Lecturer 1980-1982. Professor emeritus with retained office and teaching from 2016.

 

Previous positions:

Tel-Aviv University, Department of Economics, lecturer 1974-78

University of Pennsylvania, U.S.A., Research Fellow, Economics Research Unit (concurrent with graduate studies) 1970-1973

Macquarie University, Sydney, Australia. Senior teaching fellow 1968, lecturer with tenure 1969-1970 (resigned June 1970 to begin graduate school)

Offices and honors

Honorary doctorate, University of Genoa, March 2016

Fellow, Japanese Society for the Promotion of Science, 2000

President, European Public Choice Society, 1996-1997

Max-Planck Prize for Humanities Sciences, joint with Heinrich W. Ursprung, 1994

 

Silvaplana workshop in political economy: Jointly organized with Professor Heinrich Ursprung of the University of Konstanz, annually since 1989

 

Editorial positions

European Journal of Political Economy (Elsevier): Editor and editor-in-chief, 1994-2014

Open-Assessment E-journal, Associate editor for Political Economy and Institutions 2006-2020

Australian Economic Papers, editorial board since 2004

Editorial Board, The Journal of International Trade and Economic Development, since 1995

International Advisory Board, Review of World Economics (Weltwirtschaftliches Archive), 1995-2015

Associate Editor, Economics and Politics, 1990-1999

 

PhD thesis supervision, Bar-Ilan University

Yoav Zeif, 1999. Three essays in international trade policy and income distribution

Shirit Katav-Herz, 2002, Social norms, labor standards, and international consequences

Ronen Bar-El, 2006. Essays in intergenerational economics

Odelia Rosin, 2008. The economic consequences of obesity

Yariv Weltzman, 2010. The persistence of ineffective aid

Rezina Sultana, 2011. Essays on the political economy of economic development

Doron Klunover, 2016. Three essays in the theory of contests

 

Courses taught (graduate and undergraduate)

Public economics; Political economy; Public policy; International economics; Microeconomic theory

 

-----------------------------------------

 

Visiting positions

Université Paris 1 Panthéon-Sorbonne, Centre d’Économie de la Sorbonne, Paris. Visiting professor, Master in Economics Program, Spring semesters 2010, 2011, 2012

Princeton University, School of Public Policy and International Affairs and Department of Economics (formerly Woodrow Wilson School), visiting professor of economics, fall semester 2004, spring semester 1989,

The World Bank, Washington DC, Research Fellow, Socialist Economies Reform Unit, February–September 1990

University of California at Los Angeles (UCLA), visiting professor, Department of Economics, 1985-1987

Australian National University, visiting lecturer, The Faculties (Public Finance), 1979

University of Illinois at Urbana, visiting assistant professor of economics, 1973-74

 

Short-term visitor

2011-2020: Jadavpur University, Department of Economics, Kolkata, February 2020; Queensland University of Technology, Department of Economics December 2019; Huazhong University of Science and Technology, School of Public Administration, Wuhan, November 2016; Guangxi Normal University, School of Political Science and Public Administration, Guilin, November 2016; University of NSW Business School, November 2015; University of Queensland, Department of Economics, November-December 2015; University of Melbourne, Faculty of Business and Economics, Melbourne Institute, July 2013; Monash University, Department of Economics, August 2012

2000-2010: University of Freiburg, Institute for Economic Research, M. Ec. Program, 2009; Humboldt University, Berlin, July 2007; University of Havana, October 2006; Cambridge University, Faculty of Economics, January-February 2005; Huazhong University of Science and Technology, School of Public Administration, Wuhan, August 2005; International Monetary Fund, Washington D.C., Fiscal Affairs Department, summers 2000-2003; Kobe University, January-February 2000; Nanyang Technological University Singapore Albert Winsemius Professor, August 2000; University of Catania, March 2000

Pre-2000: Karl Marx University of Economic Sciences, Budapest (now Corvinus University of Budapest); Monash University, Center for Excellence, July 1981, July 1982; Australian National University, Research School of Social Sciences summer 1980

 

Plenary talks and public and invited lectures (excludes departmental seminars)

2016-2020: Jadavpur University, Kolkata, Department of Economics, 10th February 2020, “Interface of Economics and Politics”; Indian Institute of Foreign Trade, Kolkata, February 6, 2020, “Ambiguous protection”; Armenian Economic Association, Yerevan, June 14-16 June 2018. Keynote speaker on: “Politics and public policy”; The University of the West Indies at Mona, Kingston, Jamaica. 1st Conference of Caribbean Economists, March 9-10 2017, plenary lecture on ‘The political economy of public policy’: The case of income support and work incentives’; Guangxi Normal University, School of Political Science and Public Administration, Guilin, China, November 1 and November 3, 2016, “Public finance and public policy”; Huazhong University of Science and Technology, School of Public Administration, Wuhan, China, November 7, “Public finance and public policy”; University of Genoa, lecture on “Political economy”, at ceremony conferring an honorary doctorate, March 4 2016

2011-2015: Tullock Memorial Conference, George Mason University, Arlington, VI, USA, “The political economy of an idea: The case of rent seeking”, 2-3 October 2015; Centre for Studies in Social Sciences, Kolkata, Conference on Public Finance, Public Economics, and Public Policy, keynote speaker, “Expressive behavior and public policy”, 5-6 December 2013. http://ctrpfp.ac.in/program_dec_2013.pdf; Vanderbilt University, Trade and the Organization of Production in the Global Economy: A Conference in Honor of Wilfred Ethier, “Rent extraction and income redistribution: A behavioral perspective on international trade policy”, October 25-26, 2013; Australasian Public Choice Conference, University of Tasmania. Plenary lecture: “Beyond criticism: Logrolling and decoy voting in the United Nations”, December 10-11 2012; National University of Singapore, Lee Kuan Yew School of Public Policy. Public lecture: “Expressive behavior and public policy”, August 13, 2012; World Bank, ECA PREM Seminar, Washington DC, on “Lost in transition”, June 19, 2012; XII International Conference on Economic and Social Development, Higher School of Economics, Moscow, “The professional literature in economics”, 3-4 April 2012 http://conf.hse.ru/en/2012/honorary; Public Choice Society, World Conference, Miami. Plenary talk on the contributions of Gordon Tullock, “A good idea: So what”. March 2012; Jerusalem Institute for Market Studies May 2011. Public lecture on: "Identity and expressive behavior in voting in Israel"; Public Choice Society, San Antonio, March 2011. Plenary presentation: “Behavioral political economy”

2006-2010: Silvaplana Workshop on Political Economy. Pontresina, July 2010. “Expressive policy traps”; CESifo Workshop on Political Economy, Dresden, December 2009, keynote speaker on “Expressive behavior”; European Public Choice Society, Athens, April 2009, plenary lecture on: “Expressive behavior in economics and politics: An overview and a perspective”; Alexander von Humboldt Foundation: The Israeli Humboldt Club, the Humboldt Kolleg Symposium on “When Science and Humanities Meet”, January 8, 2009, invited lecture: “The welfare state”; Jerusalem Institute for Market Studies, 21 May 2008, public lecture: "The work ethic and the welfare state"; Hubei College of Economics, China, October 10, 2007, public lecture: “Is social justice achievable?”; Singapore Economic Review annual public lecture, Nanyang University, September 20, 2007, “Globalization and social justice”; Humboldt University, Berlin, July 9-13 2007, MEMS guest lecturer, public lectures on “Current aspects of public finance and public policy”; BESA Institute for Strategic Studies, Bar-Ilan University, May 7, 2007, public lecture on “Why does the Arab world remain poor?”;

2001-2005: University of Havana, 44th Anniversary of the Initiation of the Study of Economics, Havana, Cuba, October 6, 2006. Plenary lecture on: “The elusive quest for social justice”; Mont Pelerin Society General Meetings, Salt Lake City, August 15-20, 2004.  Plenary address on: “Institutions of international decision making: the United Nations”; The World Bank, PREM Conference, Washington DC, April 27-28, 2004, debate with Jeffrey Sachs on: “Economic policies for failed states”; European Public Choice Society, Berlin, April, 2004, plenary lecture on: “Development failure”;

1989-2000: Nanyang Technological University, Singapore, Public lecture, “Why are some countries rich and others poor?” August 2000; Israel Economic Association, Symposium on 50 years of Economic Research in Israel, April 28, 1999, invited lecture on: “Political Economy”; European Public Choice Society Annual Conference, Prague, April 1997. Presidential Address: "Political economy and political correctness"; Mont Pelerin Society General Meeting, Cannes, September 1994, plenary address: "Nostalgia, self-interest, and the transition from socialism"; European Public Choice Society Annual Conference, Portrush, April 1993, plenary address: "The transition from socialism: Some comforting thoughts for adherents to a public choice perspective"; Geneva Environmental Meetings, Environment and Development: Conflict and Convergence, May 1992, presentation on: "Environmental protection and international trade"; Annual Meetings of the Economic Association of Israel, Tel-Aviv, December 1991, plenary lecture: "The political economy of international trade policy"; European Public Choice Society Annual Conference, Meersburg, April 1990, plenary lecture on "International trade policy: Benevolent dictators and optimizing politicians"; University of Cincinnati, Taft Lecture, April 1989; public lecture on “Liberalizing socialist industry"; Karl Marx University of Economic Sciences, Budapest (now Corvinus University of Budapest) “The western model of economics’, November 1988

Books

The Political Economy of Protection

Arye L. Hillman, 1989. Harwood Academic Publishers, Chur. Reprinted 2001 by Routledge, London, and 2014 by Taylor and Francis (Routledge), London

A basic principle of the theory of international trade is that free trade is efficient. Possible externalities aside, people can only gain from voluntary exchange. This book considered the reasons why political decision makers have chosen not to allow free trade. Standard trade theory at the time of writing of the book had used the Musgrave separation between efficiency and distributional decisions through lump-sum taxes and transfers.  Yet, because such taxes and transfers are generally not available, the efficiency of free trade is compromised by governments seeking distributional objectives through trade policies. Standard trade theory also assumed benevolent governments choosing policies to maximize social welfare and explained protectionism as a second-best policy of the social-welfare maximizing governments. This volume describes decision makers who have political objectives that are not necessarily consistent with the public interest. Since the initial publication of the book, the political-economy themes of the book have become common place in the literature on international trade policy.

Public Finance and Public Policy: A Political Economy Perspective on Responsibilities and Limitations of Government

Arye L. Hillman, 2019 (3rd edition). Cambridge University Press, New York NY (1st Edition, 2003, 2nd Edition, 2009).

Other language editions: Japanese 2006, Keiso Shobo, Tokyo; Chinese 2006, Chinese Academy of Social Sciences, Beijing; Russian, 2009, Publishing House of the State University, Higher School of Economics, Moscow; Greek, 2013, Papazisis publishers, Athens; Hebrew (electronic)

Public Finance and Public Policy studies the responsibilities and limitations of government in a market economy. Featuring the same wealth of real-life examples and rigorous but accessible exposition of previous editions, the third edition has been reorganized and fully updated. The traditional public-finance topics are covered of public goods, externalities, unwanted markets, and asymmetric information. The quest for social justice is considered in terms of social insurance, moral hazard, and social mobility. Public choice concepts are applied to evaluating how politics affects societal efficiency and income distribution. Political economy is supplemented by behavioral concepts such as trust, fairness, envy, and hyperbolic discounting. The book is suitable for advanced undergraduate and graduate students taking courses on public policy and government and the market, this book offers an accessible introduction to the subject without excessive technicality.

Edited Volumes

Publications

Selected publications by field

  • International trade and migration (politics and protectionist trade policies; politics and international trade liberalization; asset markets and political choice of trade policy; trade embargoes; environmentalists and trade policy; international migration)
  • Politics and public policy (privileged policies rent seeking; expressive behavior and public policy; the Nobel Peace Prize and public policy; voluntary sharing and self-financing; tax-base competition)
  • Applications of political economy (the transition from socialism; development failure; supreme values; prejudice and discrimination; choosing to have a king)
  • Research at the World Bank and International Monetary Fund

 

RESEARCH THEME: THE POLITICAL ECONOMY OF PUBLIC POLICY

I am interested in the influence of politics on public policy, or ‘political economy’. There are different views of political economy. In the 19th century political economy was ‘economics’ as a social science. Marxians define their field of study as political economy on the claim that all of economics is politicized. My view of political economy is economic decisions by individuals or governments that are influenced by political or ideological motives. Emotion and expressive behavior (which us behavior based on identity) also have roles. Included are departures from two standard assumptions of economic theory: that lump-sum taxes that have no work disincentive effects are available for financing public spending and that public policy is designed by governments to maximize social welfare. Income redistribution through different policies has an associated efficiency loss through adverse effects on productive incentives. When criteria for redistribution are not pre-specified, there is also an efficiency loss through resources used in contesting benefits available through influence on political decisions. Because of these efficiency costs, providing incentives for people to be personally productive is preferable to reassigning what has already been produced. There are of course obvious qualifications for people who are unfortunate in not having the means to fend for themselves and their families. An assumption could be that it is in the nature of people to want to be self-reliant rather to be fed and housed by others, although experience show that there are people who prefer to take from others and even destroy rather than create.

In November 1988, at the then Karl Marx University of Economic Sciences in Budapest, with Hungary still under communist rule that was to end with free elections in March 1990, I presented to an audience of local economists the ‘western model of economics’, inclusive of lump-sum taxes according to which people contribute to society based on their ability, and with a social planner maximizing a social welfare function. After having been convinced that ‘western models’ of recommended public policy did indeed have the foundations that I had described, the local academics declared themselves to be amazed that the ‘western model’ embodied political institutions (a benevolent planner) and human behavior (people contributing according to ability and not incentives) that they were hoping to escape. I explained that the western model was normative (describing what ought to be). That did not allay their distress.

A political-economy perspective includes the work-disincentive effects of taxation and accounts for political objectives of political decision makers. My textbook Public Finance and Public Policy (3rd edition 2019) addresses the traditional questions of public finance and public policy based on the quest for efficiency and social justice, but also includes consequences when political decision makers have political objectives and when policies are determined by majority voting (in which case there is a common-pool problem of public finance in that all taxpayers contribute to financing public spending but a majority determines how budgetary revenue is spent, or for whose benefit).

Arye L. Hillman, 2019 (3rd edition). Public Finance and Public Policy: A Political Economy Perspective on Responsibilities and Limitations of Government. Cambridge University Press, New York NY

https://www.cambridge.org/core/books/public-finance-and-public-policy/FC2BC04488607F7AFB4014CE236FA804

A role for ideology is inevitable when a political economy perspective is taken. The ideological premise can be that the monopoly of government on legal coercion is necessarily benevolently used for the good of society, in particular to redistribute income, and should be described as such. The idea of necessary government benevolence is of course a normative concept describing what ought to be, while political self-interest in public policy is used to explain and predict, and is a positive concept, There need be no contradiction in fact or logic between the two perspectives. Still, protective political correctness can arise to ensure that use of the authority of government is always described as applied with benevolent intent.

Arye L. Hillman, 1998. Political economy and political correctness. Public Choice 96, 219-239. Presidential Address, European Public Choice Society, Prague, April 1997.

  • Reprinted in: Roger D. Congleton, Arye L. Hillman, Kai Konrad (Eds.), 2008, Forty Years of Research on Rent Seeking 2–Applications: Rent Seeking in Practice. Springer, Heidelberg, pp. 791 – 811.

Although I have never been a card-carrying member, my sympathies have been with the Public Choice school of economics. Gordon Tullock, the founder of the Public Choice school and the founder of the journal Public Choice, described the basic premise of Public Choice as ‘people are people’, including people in government. Traditional economics has described self-interest as underlying market decisions whether to buy and sell. It is a logical step to view self-interest as underlying all personal decisions including by people in politics – and why not people in academia?

 

It is informative that, when politics began to enter the standard economic models, the focus of the models was on the ‘median voter’ who was decisive under majority voting in determining voting outcomes. The median-voter model was a means of avoiding talking about the political decisions of representative democracy and the political agency problem that is present because voters cannot necessarily control political decisions. I have studied representative democracy, which is the prevalent form of democracy. I have also studied autocratic rulers and their associated elites in the context of why economic development does not proceed when governments in poor countries receive copious aid resources. Religion also affects incomes when populations are guided to be submissive to their elites and to accept the ‘natural order’ that leaves them poor and the elites in their societies rich.

 

It is customary to present a list of publications in chronological order.  I abide by this custom out of convention. Selected publications however first follow.

 

Although I have published papers in the ‘leading’ professional journals, I should point out that the peer-review system for academic publications is far from being fair and objective. Personal connections and luck matter in the review process and a researcher’s location can influence editorial decisions. I was an editor of the Elsevier journal, the European Journal of Political Economy, for two decades. The journal was founded as a protest by Manfred Holler as a response to perceived injustice in the editorial handling of a paper that he had submitted to the American Economic Review. It is to Manfred Holler’s credit that he did more than complain. We saw at the European Journal of Political Economy how much discretion we had in accepting or rejecting papers. It can only be taken for granted that editors at other journals have similar discretion. The European Journal of Political Economy has sought to provide the objective evaluation that allows submitted papers to receive a fair hearing – because of the merits of fairness and objectivity, and but also out of respect for the initiating motivation for the founding of the journal by Manfred Holler.

 

If we wish to judge a paper, we should read the paper, rather than basing judgment on the journal in which the paper happened to be published. This is in particular the case for authors outside of the self-serving elites of the ‘leading departments’ who pre-specify their ‘hot topics’ for a bandwagon effect so that they can cite one another and review each other’s papers for the journals they control.

 

 

-------------------------------------------------------------------------

 

 

SELECTED PUBLICATIONS BY TOPICS

 

 

I.  INTERNATIONAL TRADE AND MIGRATION

POLITICS AND PROTECTIONIST TRADE POLICIES

My research in political economy began with international trade policy. How were trade policies that departed from  efficient free trade to be explained? The prevailing explanation was that market inefficiencies led benevolent governments to restrict international trade (the explanation was promoted by Jagdish Bhagwati of the MIT economics department, who referred to markets as ‘distorted’ and as requiring correction by means that included restrictions on international trade). I showed how objectives of political support explained use of tariffs to protect industries facing increasing import competition because of falling world prices (American Economic Review 1982). The politically determined tariff did not fully compensating an industry for the lower world price, leaving benefit for consumers through a lower domestic price. The proposal that political calculations underlie protectionist trade policies was taken up by Gene Grossman (Princeton) and Elhanan Helpman (Harvard) who formulated an elegant model (American Economic Review 1994) in which a politician extracted money (rents in economic terminology) from producers seeking tariff protection against imports (they called their model ‘protection for sale’). Before the publication of ‘protection for sale’, I had extended the idea of political policy determination to explain industry collapse in the face of import competition (with James Cassing, American Economic Review 1986), and to explain how political competition between contenders for political office could result in an import quota for which quota rents were assigned to foreign producers (with Heinrich Ursprung American Economic Review 1988). The foreign producers were permitted (or instructed) to form an export cartel. Motivation was actual policy of the U.S. government. The book ‘The Political Economy of Protection’ (1989, reissued and reprinted 2014) reviewed the political influences on the conduct of international trade policy.

Arye L. Hillman, 1982. Declining industries and political-support protectionist motives. American Economic Review 72, 1180-1187.

Reprinted in:

  • The WTO, Safeguards, and Temporary Protection from Imports, Chad Brown (Ed.), Edward Elgar, Cheltenham UK, 2006.
  • The WTO and the Political Economy of Trade Policy, Wilfred Ethier and Arye L. Hillman (Eds.), Edward Elgar, Cheltenham UK, 2008, pp. 43 – 50.
  • Forty Years of Research on Rent Seeking 2 – Applications Rent Seeking in Practice. Roger D. Congleton et al. (Eds.), Springer, Berlin, 2008, pp. 105 – 112.

James H. Cassing and Arye L. Hillman, 1986. Shifting comparative advantage and senescent industry collapse. American Economic Review 76, 516-523.

Reprinted in:

  • The WTO and the Political Economy of Trade Policy, Wilfred J. Ethier and Arye L. Hillman (Eds.), Edward Elgar, Cheltenham UK, 2008, pp. 516 – 523.

Arye L. Hillman and Heinrich W. Ursprung, 1988. Domestic politics, foreign interests and international trade policy. American Economic Review 78, 729-745.

Reprinted in:

  • International Trade, J. Peter Neary (Ed.), Edward Elgar, Cheltenham UK, 1996.
  • The Globalization of the World Economy: Trade and Investment Policy, Thomas Brewer (Ed.), Edward Elgar, Cheltenham UK, 1999, pp. 470 – 86.
  • The WTO and the Political Economy of Trade Policy, Wilfred J. Ethier and Arye L. Hillman (Eds.), Edward Elgar, Cheltenham UK, 2008, pp. 99 -115.

Also: Arye L. Hillman and Heinrich W. Ursprung, 1994. Domestic politics, foreign interests, and international trade policy: Reply, American Economic Review, 1994, 84, 1476-78.

Arye L. Hillman, 1989. The Political Economy of Protection. Harwood Academic Publishers, Chur. Reprinted 2001 by Routledge, London. Reprinted 2013 by Taylor and Francis Abingdon UK.

http://www.routledge.com/books/details/9780415753654/

 

POLITICS AND INTERNATIONAL TRADE LIBERALIZATION

The view of trade liberalization propagated by trade theorists had been that governments were retreating from ‘optimum tariffs’ that they had imposed to improve their terms of trade. Papers with Peter Moser and Ngo Van Long  proposed that reciprocal trade liberalization should be viewed as ‘political exchange of market access.’ Through trade negotiations, governments made the ‘concessions’ of allowing each other’s exporters to sell in their domestic markets. The idea of ‘concessions’ is consistent with the actual conduct of trade negotiations.

Arye L. Hillman, Peter Moser and Ngo Van Long, 1995. Modeling reciprocal trade liberalization: The political-economy and national-welfare perspectives. Schweizerische Zeitschrift für Volkswirtschaft und Statistik (Swiss Journal of Economics and Statistics) 131, 503-515.

Arye L. Hillman and Peter Moser, 1996. Trade liberalization as politically optimal exchange of market access. In: Matthew Canzoneri, Wilfred Ethier, and Vittorio Grilli (Eds.), The New Transatlantic Economy, Cambridge University Press, New York, NY, pp. 295-312.  

Reprinted in:

  • The Global Trading System, volume 2, Core Rules and Procedures, Kym Anderson and Bernard Hoekman (Eds.), I. B. Tauris and Co Ltd, London and New York, 2002.
  • The WTO and the Political Economy of Trade Policy, Wilfred Ethier and Arye L. Hillman (Eds.), Edward Elgar, Cheltenham UK, 2008, pp. 290 – 307.

 

ASSET MARKETS AND POLITICAL CHOICE OF TRADE POLICY

Asset markets had not been included in studies of trade policy. A research program with JoAnne Feeney studied how asset markets affected policies. We showed how income diversification through asset markets moderated support for protectionist policies. Asset markets also compromised the case for ‘strategic trade policy’, which had become the favored case for intervention by governments in international markets.

JoAnne Feeney and Arye L. Hillman, 2004. Trade liberalization through asset markets. Journal of International Economics 64, 151-167.

Reprinted in:

  • The WTO and the Political Economy of Trade Policy, Wilfred J. Ethier and Arye L. Hillman (Eds.), Edward Elgar, Cheltenham UK, 2008, pp. 173 - 189.

JoAnne Feeney and Arye L. Hillman, 2001. Privatization and the political economy of strategic trade policy. International Economic Review 42, 535-556.

 

TRADE EMBARGOS

Studies below appear to be the first analyses of trade subject to the threat of boycotts or embargoes. A country was studied subject to embargo threat when importing products such a defense equipment. Public-policy conclusions were derived when a country that is threatened with an embargo on imports of a depletable resource such as oil has substitutable domestic resources. The consequences of an oil cartel having joint monopoly power in the international oil and capital markets were studied. The cartel could influence both sides of the Hotelling rule for extraction of depletable resources (the price of oil and the interest rate).

Ruth W. Arad and Arye L. Hillman, 1979. Embargo threat, learning and departure from comparative advantage. Journal of International Economics 9, 265 – 75.

Arye L. Hillman and Ngo Van Long, 1983. Pricing and depletion of an exhaustible resource when there is anticipation of trade disruption. Quarterly Journal of Economics 98, 215 – 33.

Arye L. Hillman and Ngo Van Long, 1985. Monopolistic recycling of oil revenue and intertemporal bias in oil depletion and trade. Quarterly Journal of Economics 100, 597 – 624.

 

ENVIRONMENTALISTS AND TRADE POLICY

A project with Henry Ursprung investigated the influence of environmentalists on political determination of international trade policy. Outcomes were shown to depend on whether the environmentalists are nimbies (not in my backyard) or cared about the global environment.

Arye L. Hillman and Heinrich W. Ursprung, 1992. The influence of environmental concerns on the political determination of international trade policy. In: Kym Anderson and Richard Blackhurst (Eds.), The Greening of World Trade Issues, University of Michigan Press, Ann Arbor MI, 1992, pp. 195 – 220.

Arye L. Hillman and Heinrich W. Ursprung, 1994. Greens, super greens, and international trade policy: Environmental concerns and protectionism. In: Carlo Carraro (Ed.), Trade, Innovation, Environment, Springer, Heidelberg, pp. 75 – 108.

 

INTERNATIONAL MIGRATION

Acknowledging that it is people who migrate rather international factor movements taking place affects social and economic policies, including financing of intergenerational transfers. We showed why governments might allow illegal immigration as long as the employment of immigrants was confined to particular sectors and studied emigration as a response to predatory government. Immigrants can be part of the efficiency-wage theory of labor-market equilibrium

Arye L. Hillman, 1994. The political economy of migration policy. In: Horst Siebert (Ed.), Migration: A Challenge for Europe, J.C.B. Mohr Paul Siebeck, Tübingen, pp. 263 – 282.

Arye L. Hillman and Avi Weiss, 1999. A theory of permissible illegal immigration. European Journal of Political Economy 15, 585-604.

Epstein, Gil S., Arye L. Hillman, and Heinrich W. Ursprung, 1999. The king never emigrates. Review of Development Economics, 3, 107 – 21.

Reprinted in:

  • Forty Years of Research on Rent Seeking 2 – Applications: Rent Seeking in Practice. Roger D. Congleton, Arye L. Hillman, Kai Konrad (Eds.), Springer 2008, pp. 265 – 79.

Epstein, Gil S. and Arye L. Arye L. Hillman 2003. Unemployed immigrants and voter sentiment in the welfare state, Journal of Public Economics, 87, 1641-1655.

Reprinted in:

  • Seiichi Katayama and Heinrich W. Ursprung (Eds.), International Economic Policies in a Globalized World, Springer, Berlin, 2004, pp. 119 – 32.

 

MEASUREMENT OF COMPARATIVE ADVANTAGE IN INTERNATIONAL TRADE

In an early paper, I studied ‘revealed comparative advantage’, which had been proposed by Bela Balassa as a measure of comparative advantage in international trade The measure has been a popular means of quantifying comparative advantage. I showed that the measure of ‘revealed comparative advantage’ does not necessarily reveal comparative advantage and derived a sufficient condition for the measure to be valid. The paper was submitted to the journal in which the original paper on ‘revealed comparative advantage’ had been published (the Manchester School). The editor somewhat obtusely rejected the paper on the grounds that ‘revealed comparative advantage was not actually intended to measure (reveal) comparative advantage’. Yet the measure was being used as such and the name accorded to the measure suggested measuring comparative advantage. My study of the measure emanated from research on the consequences for Israel of the initiation in 1988 of the free-trade agreement with Europe. The research was in conjunction with the Kiel Institute. The editor of the journal of the Kiel Institute offered to publish the paper.

Arye L. Hillman, 1980. Observations on the relation between "revealed comparative advantage" and comparative advantage as indicated by pre-trade relative prices. Review of World Economics Weltwirtschaftliches Archiv 116, 315 – 21.

  • See also: Jeroen Hinloopen and Charles Van Marrewijk, 2008. Empirical relevance of the Hillman condition and comparative advantage. Applied Economics 40, 2313 – 2328.

 

ENERGY AND COMPARATIVE ADVANTAGE

Introducing energy as a factor of production into the U.S. input-output table allowed asking whether the U.S., which was importing energy (oil) directly at the time, was also importing energy indirectly through the factor content of international trade. We found a version of the Leontief Paradox based on factor complementarity between energy and capital. The U.S., which was a direct importer of energy, was exporting energy indirectly.

Arye L. Hillman and Clark W. Bullard III, 1978. Energy, the Heckscher-Ohlin theorem and U.S. international trade. American Economic Review 68, 96-106.

Reprinted in:

  • John Cunningham Wood (Ed.), 1997. Bertil Ohlin: Critical Assessments, Routledge, London.

 

------------------------------------------------------------------------------------------------------

 

II. POLITICS AND PUBLIC POLICY

PRIVILEGED POLICIES AND RENT SEEKING

I maintained an interest in international trade and migration. My interests however expanded to the political economy of public policy in general. Gordon Tullock (Western Economic Journal 1967) had observed that if political decisions created ‘rents’ (or politically assigned privileged benefits), there would be social losses incurred through time and resources used in contesting the rents. Building on his observations, in joint research with Bar-Ilan colleagues at the time Eliakim Katz and Dov Samet, and then at UCLA with John Riley, I developed the theory of social loss through rent seeking to include risk aversion and a contest-success function for which the highest outlay made in a contest for a rent secured the rent (Tullock 1980 had assumed that securing a rent was like winning a lottery). This research project included the link between bribes and rent seeking in hierarchical administrative structures.

Arye L. Hillman and Eliakim Katz, 1984. Risk-averse rent seekers and the social cost of monopoly power. Economic Journal 94, 104-110.

Reprinted in:

  • The Political Economy of Rent Seeking, Charles Rowley, Robert Tollison and Gordon Tullock (Eds.), Kluwer Academic Publishers, Boston, 1988, pp. 81-90.
  • The Economic Analysis of Rent Seeking, Roger Congleton and Robert Tollison (Eds.), Edward Elgar, Oxford, 1995, pp. 243 – 249.
  • The Political Economy of Rent Seeking, Charles K, Rowley, Robert D. Tollison, and Gordon Tullock, Kluwer Academic Publishers, Boston and Dordrecht, pp. 81-90.
  • Forty Years of Research on Rent Seeking 1 – The Theory of Rent seeking. Roger D. Congleton, Arye L. Hillman, Kai Konrad (Eds.), Springer 2008, pp. 97 – 103.

Arye L. Hillman and Eliakim Katz, 1987. Hierarchical structure and the social costs of bribes and transfers. Journal of Public Economics, 34, 129-142.

Reprinted in:

  • The Economics of Corruption and Illegal Markets, Gianluca Fiorentini and Stephano Zamagni (Eds.), Edward Elgar, Cheltenham UK 1999. In the series The International Library of Critical Writings in Economics.
  • Forty Years of Research on Rent Seeking 1 – The Theory of Rent seeking. Roger D. Congleton, Arye L. Hillman, Kai Konrad (Eds.), Springer 2008, pp. 523 – 536.

Arye L. Hillman and Dov Samet, 1987. Dissipation of contestable rents by small numbers of contenders. Public Choice, 54, 63-82.

Reprinted in:

  • Forty Years of Research on Rent Seeking 1 – The Theory of Rent seeking. Roger D. Congleton, Arye L. Hillman, Kai Konrad (Eds.), Springer 2008, pp. 165 – 184.

See also: Hillman, Arye L. and Dov Samet, 1987. Characterizing equilibrium rent-seeking behavior: A reply to Tullock, Public Choice, 54, 85-87.

Arye L. Hillman and John Riley, 1989. Politically contestable rents and transfers. Economics and Politics 1, 17-39.

Reprinted in:

  • Forty Years of Research on Rent Seeking 1 – The Theory of Rent seeking. Roger D. Congleton, Arye L. Hillman, Kai Konrad (Eds.), Springer 2008, pp. 185 – 207.

 

EXPRESSIVE BEHAVIOR AND PUBLIC POLICY

I have defined expressive behavior as encompassing individuals acts that confirm an identity that people have chosen for themselves. The identity need not be consistent with actual behavior. The identity might be one of generosity and benevolence expressed in non-decisive behavior such as voting, rhetoric, and giving to others, when in real-life, in situations in which decisions matter for outcomes, behavior might be self-interested. An expressive-policy trap emerges when a majority of non-decisive voters expressively supported a policy that each voter because of actual adverse consequences would veto if decisive. Gordon Tullock (1971) had used the example of voting for high taxes and income-redistribution but not actually being charitable in true life. I was influenced by the terror that had been unleashed on the people in Israel, but considerable numbers of voters voting for ‘peace’, not because they believed necessarily that peace was achievable, but because they identified themselves as seekers of peace. A natural experiment provides evidence on how identity can override self-interest. When majorities and minorities persist because group identity predetermines how people vote, democracy is usually compromised  because there can be no loyal opposition waiting a turn in government. We studied a case (local-government elections in Israel) in which sustained democracy has been consistent with group identity.

Arye L. Hillman, 2010. Expressive behavior in economics and politics. European Journal of Political Economy 26, 404 – 419.

Arye L. Hillman, 2011. Expressive voting and identity: evidence from a case study of a group of U.S. voters. Public Choice 148, 249-257.

Arye L. Hillman, Kfir Metsuyanim, and Niklas Potrafke, 2015. Democracy with group identity. European Journal of Political Economy, 40(Part B), 274-287.

 

THE NOBEL PEACE PRIZE AND PUBLIC POLICY

A foundation for political economy or public choice is the principal-agent problem between voters and their political representatives. Voters have imperfect control over the policies that their political representatives choose. It is however uncommon for political representatives to choose policies that are unpopular with large segments of the electorate and that raise the possibility of electoral defeat. Yet that is precisely what happened when the chancellor of Germany and the governing political coalition chose to admit more than a million asylum seekers, who it has been shown have in general intentions regarding permanence that do not differ from the intentions of immigrants, legal or illegal. In a paper on ‘policies and prizes’, Ngo Van Long and I do not judge the ethical merits of a policy of openness to asylum seekers. We were interested in the manifestation of the political principal-agent problem through the quest for the Nobel Peace Prize. The Prize awards money but we focus on the Prize as a ‘rent’ or ‘ego-rent’ (the latter in the terminology of a literature on candidates’ benefits from political office). We also study the anti-immigration policy change that occurred when, despite the display of benevolence, the Nobel Peace Prize was not achieved. We point to other cases in which the Nobel Peace Prize was given (to the negotiators of the end of the Vietnam war and to an American president) and the Prize being sought and not given (the U.S. secretary of state seeking to impose a peace agreement in the middle east).

Arye L. Hillman and Ngo Van Long, 2018. Policies and prizes. European Journal of Political Economy 54, 99-109. Special issue on The Political Economy of Public Policy.

 

VOLUNTARY SHARING AND SELF-FINANCING

An alternative to public finance is voluntary sharing and self-financing. These papers considered efficient club size when there is exclusion. A mechanism for determining inclusion is sale of lottery tickets, which can provide greater revenue than simply selling admission.

Elhanan Helpman, and Arye L. Hillman, 1977. Two remarks on optimal club size. Economica 44, 293 – 96.

Arye L. Hillman and Peter Swan, 1979. Club participation under uncertainty, Economics Letters 4, 307–12.

Arye L. Hillman and Peter Swan, 1983. Participation rules for Pareto-optimal clubs. Journal of Public Economics 20, 55 – 76.

 

TAX-BASE COMPETITION

A literature describes governments competing for tax bases, or competing to tax the same activity or the same source of income. Ostensibly the first paper describing tax competition in a federal system of government is:

James H. Cassing and Arye L. Hillman, 1982. State-federal resource tax rivalry. Economic Record 58, 235 – 241.

 

RELIGION AND ECONOMIC FREEDOM

Does religion influence economic freedom? Using a cross-sectional dataset for 137 countries averaged over the period 2001-2010, we studied how the relation between the three religions derived from Judaism – Protestantism, Catholicism, and Islam – and economic freedom. The Protestant ethic requires economic freedom, suggesting a prediction of greater economic freedom in Protestant societies. Islam means ‘submission’, suggesting restrictions on economic freedom. Empirical estimates confirm that Protestantism is most conducive to economic freedom, with Islam least conducive, with Catholicism in between.

Arye L. Hillman and Niklas Potrafke, 2018. Economic freedom and religion: An empirical investigation. Public Finance Review 46(2), 249-275. Special issue on ‘Economic Freedom and Race/Ethnicity’, Gary Hoover editor. CESifo working paper no. 6017 (July 2016)

 

------------------------------------------------------------------------------------------------------

III. APPLICATIONS OF POLITICAL ECONOMY

THE TRANSITION FROM SOCIALISM

The collapse of communism around 1990 was a momentous historical and rent-creating event that merited study. I was fortunate in having been invited in 1990 for an extended stay at the World Bank when the unit focusing on the transition from socialism was initiated and in being able in the 1990s to visit and study numerous countries in transition. The political-economy perspective explained much political behavior and economic outcomes in transition economics. In most countries, grand theft of state property (called privatization) was taking place, when the focus of external policy advice provided to the governments (the politicians) in the transition economies was on how to benevolently improve economic outcomes.

Arye L. Hillman, 1992. Progress with privatization. Journal of Comparative Economics 16, 733 – 749.

Arye L. Hillman, 1994. The transition from socialism: An overview from a political-economy perspective. European Journal of Political Economy 10, 191 – 225. Special issue, Festschrift in honor of Peter Bernholz, edited by Manfred Gärtner and Heinrich W. Ursprung.

There was self-interested political opportunism in the transition, starting from the top. This was not Moses taking his people to the Promised Land. Predictions regarding the success of transition to a high-income market economy depended on whether the prior political culture that was based on personal dispensation of privilege and rents would be retained.

Alan Gelb, Arye L. Hillman, and Heinrich W. Ursprung, 1998. Rents as distractions: Why the exit from transition is prolonged. In: Nicolas C. Baltas, George Demopoulos, and Joseph Hassid (Eds.), Economic Interdependence and Cooperation in Europe, Springer, Heidelberg, 21 – 38.

Arye L. Hillman and Heinrich W. Ursprung, 2000. Political culture and economic decline. European Journal of Political Economy 16, 189-213. Reprinted in:

  • Forty Years of Research on Rent Seeking 2 – Applications: Rent Seeking in Practice. Roger D. Congleton, Arye L. Hillman, Kai Konrad (Eds.), Springer 2008, pp. 219 – 243.

Arye L. Hillman, 2002. On the way to the Promised Land: ten years in the wilderness without Moses. Published in Russian (translated by Mark Levin). Economics and Mathematical Methods - Journal of the Central Economic and Mathematical Institute of the Russian Academy of Sciences 38, 78 – 94.

Rather than contesting privileges and benefits bestowed by a central government, local political leaders could do better controlling their own populations directly. The word ‘transition’ implies a process with an endpoint but the ‘transition’ from socialism remained an ongoing process. I suggested an analogy with the metamorphosis of a caterpillar to a butterfly. In the case of the butterfly, transition is not observed, but a beautiful creature predictably emerges. Transition from socialism was observable but the outcome was not predictable and need not be beautiful. I studied why the transition from socialism had resulted in the creation of numerous states of the USSR when tendencies in Europe were towards unified policies. Again at the forefront of an answer were political privileges and rents.

Arye L. Hillman, 2003. Interpretations of transition. In: Nauro F. Campos and Jan Fidrmuc (Eds.), Political Economy of Transition and Development: Institutions, Politics, and Policies, Kluwer Academic Publishers, Dordrecht, pp. 23 – 40.

 Arye L. Hillman, 2005. Political institutions, jurisdictional boundaries, and rent creation. Keio Economic Studies, 42 nos. 1-2, 25 – 37. Special issue in honor of Professor Michihiro Ohyama, edited by Wilfred J. Ethier and Makoto Yano.

Around 1988 a transition from socialism was also beginning in Israel. The kibbutz in Israel is well-known as a successful application of collectivist principles. The foundations for the existence of the state of Israel were laid by the kibbutz system, which allowed defense of communities in a hostile environment and also avoided the low market wages through labor cooperation. Motivation overcame the moral hazard that required the coercion and near slavery of the communist system and resulted in the collapse of cooperative systems elsewhere. Collective ownership in Israel went far beyond the agricultural kibbutz. Nearly all means of production were collectively owned. Free-trade agreements with Europe and the United States that came into force in 1988 created social dilemmas because of inconsistency of socialist organization with import competition from profit-focused foreign producers. My 1988 paper described the economy-wide structure of collective ownership that would have to change if transition to a market-economy were to take place. The paper clearly placed me outside of the socialist establishment that still controlled the economy and the public service. There were very few other economists out there with me. There were personal costs because of benefits forgone from socialist patronage including consulting contracts and membership of boards of directors of the socialist enterprises (owned not by the state but effectively by the Labor Party. There could also be personal costs in an economics department otherwise composed of the Party faithful. Hayek was insightful in observing that the true motive for socialist organization of industry and society might be megalomania of politicians and public administrators (and academic deans) who want to control others. The economy of Israel made a successful transition from socialism and in 2020 Israel was a developed high-income economy.

Arye L. Hillman, 1988. Impediments to a competitive environment in Israel. Presented at Symposium on American-Israel Economic Relations in Honor of the 40th Anniversary of the State of Israel, New York (June 1988). With preface added January 2016.

Available from https://www.researchgate.net/profile/Arye_Hillman?origin=publication_list

Arye L. Hillman 1991. Liberalization dilemmas. In Markets and Politicians: Politicized Economic Choice, Arye L. Hillman (Ed.), Kluwer Academic Publishers, Dordrecht and Boston, chapter 10, pp. 189 – 207.

 

DEVELOPMENT FAILURE

Why, given all the resources that have provided through aid to poor countries, have successes of economic development been so few? The question becomes ideologically sensitive if the explanation for development failure is that aid resources are provided to governments that appropriate the resources for the benefit of politically-connected elite families or for the personal benefit of the autocratic rulers themselves. The sensitivity is that governments are being criticized instead of being exhorted to be benevolent and to follow advice that accompanies aid about to improve the lives of the poor. My research on development failure showed how political interest was an impediment to aid helping the poor to escape poverty. Much of the research was conducted at the International Monetary Fund where the Fiscal Affairs Division was concerned that corruption in aid-recipient countries made the aid given and the accompanying advice given ineffective. When it was suggested that I look at impediments to economic development because of corruption in government, I switched the topic to locations in which the strong simply take advantage of the weak. I called such circumstances those of a Nietzschean society, after the philosopher Friedrich Nietzsche. The source of strength of the strong was usually authoritarian control of government and the military. Corruption could not be said to be present because there was no rule of law that could designate corruption as illegal.

Arye L. Hillman, 2004. Nietzschean development failures. Public Choice 119(3), 263 – 280.

Arye L. Hillman and Eva Jenkner, 2004. User payments for basic education in low-income countries. In: Helping countries Develop: The Role of Fiscal Policy, Sanjeev Gupta, Benedict Clements, and Gabriela Inchauste (Eds.), International Monetary Fund, Washington DC, 2004, pp. 233 – 264.

  • Non-technical version: How to pay for basic education: Poor children in poor countries, Economic Issues 33, 2004, International Monetary Fund, Washington DC.

Baldacci, Emanuele, Arye L. Hillman, and Naoko Kojo, 2004. Growth, governance, and fiscal-policy transmission channels in low-income countries. European Journal of Political Economy 20, 517 – 549.

Reprinted in:

  • Helping countries Develop: The Role of Fiscal Policy, Sanjeev Gupta, Benedict Clements, and Gabriela Inchauste (Eds.), International Monetary Fund, Washington DC, 2004, pp. 67 – 104.

Arye L. Hillman, 2007. Democracy and low-income countries. In José Casas Pardo and Pedro Schwartz (Eds.), Public Choice and Challenges of Democracy, Edward Elgar, Cheltenham, U.K., pp. 277 – 294.

 

SUPREME VALUES

A step beyond authoritarian government is totalitarian government, which based on ideology controls the totality of people’s lives (or quite often ends people’s lives). Peter Bernholz has studied supreme values as underlying totalitarian government. The supreme values are defined by an ideological ranking of objectives that do not allow substitution among the objectives (known as lexographic preferences). The message is that, when confronting an adversary that has a supreme-value ideology, no prospect of compromise should be expected. Supreme values contradict the idea that soft diplomacy and persuasion can convince an adversary to stand down rather to engage in conflict.

Raphael Franck, Arye L. Hillman, and Miriam Krausz, 2005. Public safety and the moral dilemma in the defense against terror. Defense and Peace Economics 16(5), 347 – 364..

Arye L. Hillman, 2007. Economic and security consequences of supreme values. Public Choice 30, 259 – 280.

  • Also published as: An economic perspective on radical Islam. In Hillel Frisch and Efraim Inbar (Eds.), 2008. Radical Islam and International Security: Challenges and Responses, Routledge, London, pp. 44 – 69.

Arye L. Hillman, 2020. Harming a favored side: An anomaly with supreme values and good intentions. Public Choice.

 

PREJUDICE AND DISCRIMINATION

My interest in the study of supreme values combines with understanding prejudice and discrimination.  Absence of objective criteria for the evaluation of economic research allows subjectivism and bias in peer evaluation. The bias can reflect prejudice and result in academic exclusion. Heinrich Ursprung and I studied three cases of academic exclusion – of Alexander Del Mar, J.A. Hobson, and Gordon Tullock, all of whom challenged mainstream views of their time. Del Mar challenged the mainstream view on the role of money and monetary theory, but in addition was excluded because, with a belief in eugenics that prevailed at the time, Del Mar, in being Jewish, was declared by anti-Semites to be incapable of original thought. Hobson was regarded as a traitor to his class for advocating fair treatment for lower classes. Gordon Tullock’s proposal that rent seeking was a source of inefficiency implied that governments, rather than benevolently maximizing social welfare, created privilege through designation of beneficiaries of rents. Tullock thereby challenged the mainstream ideological view of government as benevolent and efficiency-seeking. Tullock’s paper introducing rent seeking was rejected by an editor of the American Economic Review who was an open avowed Maoist, and who at the same time as rejecting Tullock’s paper accepted a paper that attributed inefficiency to people who were not contributing to the social good because they were shirking (and who might require re-education to teach them to contribute according to ability). After initial academic exclusion, Alexander Del Mar, J.A. Hobson, and Gordon Tullock were in due course recognized for the originality and the merits of their ideas. Each however incurred personal costs because of prejudice.

Arye L. Hillman and Heinrich W. Ursprung, 2016. Academic exclusion: Some experiences. Public Choice, 167(1), 1-20.

The literature on prejudice against Jews and extended to the Jewish state provides extensive historical accounts of atrocities and hate. There has been less attention directed at explaining the foundations of the prejudice. Is the prejudice explained by economic or behavioral concepts? Behavioral explanations are envy, fear, and cognitive dissonance. The extent of prejudice found in a population appears related to whether luck or effort is perceived to be the primary determinant of personal success.

Arye L. Hillman, 2013. Economic and behavioral foundations of prejudice. In Charles Asher Small (Ed.), Global Antisemitism: A Crisis of Modernity, Martinus Nijhoff Publishers, Leiden, Netherlands, and Boston, MA, pp. 51-67.

Data on voting in the United Nations General Assembly between January 1990 and June 2015 reveal a preoccupation with one country, Israel, which appears in 65 percent of resolutions in which a country is named. The resolutions are perennial and consistently critical. With resolutions non-binding, UN General Assembly voting is expressive. We explain the prejudice in UN voting as primarily due to decoy voting, to deflect attention from autocrats’ violations of human rights of their people. A related study on voting on the United Nations Goldstone Report found significant differences between democracies and autocracies regarding whether self-defense against state-sponsored terror was a war crime.

 

Raphael N. Becker, Arye L. Hillman, Niklas Potrafke, Alexander H. Schwemmer, 2015. The preoccupation of the United Nations with Israel: Evidence and theory. Review of International Organizations 10(4), 413-437.

Arye L. Hillman and Niklas Potrafke, 2015. The UN Goldstone Report and Retraction: An empirical investigation. Public Choice 163(3), 247-266.

 

CHOOSING TO HAVE A KING

Thomas Hobbes in his book Leviathan (1651), sought to justify a leviathan or king with all-encompassing power. To justify his leviathan, Hobbes used the response of the prophet Samuel to the request by the tribes of Israel that a king be chosen to be pointed over them. Hobbes portrayed Samuel as supporting choosing a king. Hobbes however misrepresented Samuel who warned ‘you will regret the day that you appointed a king’. Hobbes’ father was a clergyman and he had access to the bible, including in English. Hobbes stopped short of including the sentence containing Samuel’s warning.

Hillman, Arye L., 2009. Hobbes and the prophet Samuel on leviathan government. Public Choice 141, 1 – 4.

Hillman, Arye L., 2009. Hobbes and Samuel: reply (to Geoffrey Brennan). Public Choice 141, 13 – 15.

 

 

---------------------------------------------------------------------------

       

IV. RESEARCH AT THE WORLD BANK AND INTERNATIONAL MONETARY FUND

Edited volumes

Arye L. Hillman and Branko Milanovic (Eds.), 1992. The Transition from Socialism in Eastern Europe: Domestic Restructuring and Foreign Trade. The World Bank, Washington, D.C.

http://documents.worldbank.org/curated/en/1992/09/440179/transition-socialism-eastern-europe-domestic-restructuring-foreign-trade

Arye L. Hillman and Željko Bogetić (Eds.), 1995. Financing Government in Transition, Bulgaria: The Political Economy of Tax Policies, Tax Bases, and Tax Evasion. The World Bank, Washington, D.C., 1995. Reprinted by Avebury Publishing, Brookfield, Vermont, 1996.

http://documents.worldbank.org/curated/en/1995/09/697061/bulgaria-financing-government-transition-political-economy-tax-policies-tax-bases-tax-evasion

 

Research papers

Arye L. Hillman and Adi Schnytzer, 1992. Creating the reform-resistant dependent economy: Socialist comparative advantage, enterprise incentives and the CMEA. In: Arye L. Hillman and Branko Milanovic (Eds.), The Transition from Socialism in Eastern Europe: Domestic Restructuring and Foreign Trade, The World Bank, Washington, DC, chapter 10, pp. 243 – 262.

Arye L. Hillman, Istvan Abel, and David Tarr, 1992. The government budgetary consequences of reform of the CMEA system of international trade: The case of Hungary. In: Arye L. Hillman and Branko Milanovic (Eds.), The Transition from Socialism in Eastern Europe: Domestic Restructuring and Foreign Trade, The World Bank, Washington, DC, chapter 12, 277-293.

Željko Bogetić and Arye L. Hillman, 1994. The tax base in the transition: The case of Bulgaria. Policy Research Working Paper number 1267, The World Bank, Washington, DC. Published in: Communist Economies and Economic Transformation 1994, 6, 267-282. Updated as: Bogetić, Željko and Arye L. Hillman, 1995. The choice of a tax system. In: Željko Bogetić and Arye L. Hillman (Eds.), Financing Government in Transition, Bulgaria: The Political Economy of Tax Policies Tax Bases, and Tax Evasion. The World Bank, Washington, D.C., pp. pp. 33 – 46.

Arye L. Hillman, Lubomir Mitov and R. Kyle Peters, 1995. The private sector, state enterprises, and informal economic activity. In: Željko Bogetić and Arye L. Hillman (Eds.)Financing Government in Transition, Bulgaria: The Political Economy of Tax Policies, Tax Bases, and Tax Evasion, , The World Bank, Washington, D.C., pp. 47 – 70.

Arye L. Hillman, Manuel Hinds, Branko Milanovic, and Heinrich W. Ursprung, 1997. Protectionist pressures and enterprise restructuring: The political economy of trade policy in transition. In: Trade and Tax Policy, Inflation and Exchange Rates, Assaf Razin and Hans-Jürgen Vosgerau (Eds.), Springer: Heidelberg, pp. 215 – 243.

 Arye L. Hillman, 2004. Poverty, inequality, and unethical behavior of the strong. Working Paper no 00/187, November 2000, International Monetary Fund, Washington D.C. Revised and published as Nietzschean development failures. Public Choice 119, 263 – 280.

Emanuele Baldacci, Arye L. Hillman, and Naoko Kojo, 2004. Growth, governance, and fiscal-policy transmission channels in low-income countries. European Journal of Political Economy 20, 517 – 549. Revised version of Working Paper no 03/237, December 2003, International Monetary Fund, Washington DC. Reprinted in: Sanjeev Gupta, Benedict Clements, and Gabriela Inchauste (Eds.), 2004. Helping countries Develop: The Role of Fiscal Policy, International Monetary Fund, Washington DC, pp. 67 – 104.

Arye L. Hillman and Eva Jenkner, 2004. User payments for basic education in low-income countries. In: Sanjeev Gupta, Benedict Clements, and Gabriela Inchauste (Eds.), 2004. Helping countries Develop: The Role of Fiscal Policy, International Monetary Fund, Washington DC, pp. 233 – 264. Working Paper no 02/182, November 2002, International Monetary Fund, Washington D.C. Non-technical version: How to pay for basic education: Poor children in poor countries, Economic Issues 33, 2004, International Monetary Fund, Washington DC.

Christian Bjørnskov, Željko Bogetić, Arye L. Hillman, and Milenko Popović, 2014. Trust and identity in a small post-socialist post-crisis society. Europe and Central Asia Region, Poverty Reduction and Economic Management Unit, Policy Research Working Paper 6828, The World Bank, Washington DC.

https://openknowledge.worldbank.org/bitstream/handle/10986/17713/WPS6828.pdf?sequence=1

 

 

 

 

Research

In 1988, at the then Karl Marx (now Budapest) School of Economics, with Hungary still under communist rule that was to end with free elections in March 1990, I presented to an audience of local economists the ‘western model of public policy’ inclusive of lump-sum taxes and a social planner maximizing a social welfare function. The audience at first thought that I was joking. Then, having been convinced that ‘western models’ of recommended public policy did indeed take the form that I had described, the local academics declared themselves to be aghast that the ‘western model’ embodied characterizations of political institutions (an omniscient planner) and human behavior (contribution according to ability and not incentives) that they were hoping to escape. I attempted to explain that the model was normative (describing what ought to be). That did not allay their distress.

When, around the mid-1990s, political economy began to enter mainstream western literature, there was a tendency to model a median voter as determining policy. As was shown by Moises Ostogorski in 1903, policies determined by the median voter can be precisely the contrary of the policies determined by voting under representative democracy. The median-voter models downplay, or indeed ignore, political discretion and rent seeking: politicians are not present in these models. The standard mainstream model went from a government maximizing social welfare to absence of government, with politicians and political discretion hidden. This was not the case for the standard model of Public Choice.

My research has focused on representative democracy, for which the political principal-agent problem, political discretion, the public-finance common-pool problem, and rent seeking are present. I have been fortunate to have the ‘Public Choice school’ to provide a forum to give a hearing to my political-economy ideas. My research has been consistent with the principles of the Public-Choice school, although I have not been a card-carrying member.

Presentations

Plenary talks and public and invited lectures (excludes departmental seminars)

  • Armenian Economic Association, Yerevan, June 14-16 June 2018. Keynote speaker on: Politics and public policy; A review.
  • The University of the West Indies at Mona, Kingston, Jamaica. 1st Conference of Caribbean Economists, March 9-10 2017. Plenary lecture on ‘The political economy of public policy’: The case of income support and work incentives’.
  • Guangxi Normal University, School of Political Science and Public Administration, Guilin, China, November 1 and November 3, 2016, “Public finance and public policy”
  • Huazhong University of Science and Technology, School of Public Administration, Wuhan, China, November 7, “Public finance and public policy”
  • University of Genoa, lecture on “Political economy”, at ceremony conferring an honorary doctorate, March 4 2016.
  • Tullock Memorial Conference, George Mason University, Arlington, VI, USA. “The political economy of an idea: The case of rent seeking”, 2-3 October 2015.
  • Centre for Studies in Social Sciences, Kolkata, Conference on Public Finance, Public Economics, and Public Policy, keynote speaker, “Expressive behavior and public policy”, 5-6 December 2013.
  • Trade and the Organization of Production in the Global Economy: A Conference in Honor of Wilfred Ethier, Vanderbilt University, “Rent extraction and income redistribution: A behavioral perspective on international trade policy”, October 25-26, 2013.
  • Australasian Public Choice Conference, University of Tasmania. Plenary lecture: “Beyond criticism: Logrolling and decoy voting in the United Nations”, December 10-11 2012
  • National University of Singapore, Lee Kuan Yew School of Public Policy. Public lecture: “Expressive behavior and public policy”, August 13, 2012
  • World Bank, ECA PREM Seminar, Washington DC, on “Lost in transition”, June 19, 2012
  • XII International Conference on Economic and Social Development, Higher School of Economics, Moscow, “The professional literature in economics”, 3-4 April 2012
  • Public Choice Society, World Conference, Miami. Plenary talk on the contributions of Gordon Tullock, “A good idea: So what”. March 2012
  • Jerusalem Institute for Market Studies May 2011. Public lecture on: "Identity and expressive behavior in voting in Israel"
  • Public Choice Society, San Antonio, March 2011. Plenary presentation: “Behavioral political economy”
  • Silvaplana Workshop on Political Economy. Pontresina, July 2010. “Expressive policy traps”
  • CESifo 3rd Workshop on Political Economy, Dresden, December 2009. Keynote speaker on “Expressive behavior”
  • European Public Choice Society, Athens, April 2009. Plenary lecture on: “Expressive behavior in economics and politics: An overview and a perspective”
  • Alexander von Humboldt Foundation: The Israeli Humboldt Club, the Humboldt Kolleg Symposium on “When Science and Humanities Meet”, January 8, 2009. Invited lecture: “The welfare state”
  • Jerusalem Institute for Market Studies, 21 May 2008. Public lecture: "The work ethic and the welfare state"
  • Hubei College of Economics, China, October 10, 2007. Public lecture: “Is social justice achievable?”
  • Singapore Economic Review annual public lecture, Nanyang University, September 20, 2007, “Globalization and social justice”
  • Humboldt University, Berlin, July 9-13 2007, MEMS guest lecturer, public lectures on “Current aspects of public finance and public policy” 
  • BESA Institute for Strategic Studies, Bar-Ilan University, May 7, 2007, public lecture on “Why does the Arab world remain poor?”
  • University of Havana, 44th Anniversary of the Initiation of the Study of Economics, Havana, Cuba, October 6, 2006. Plenary lecture on: “The elusive quest for social justice”
  • Mont Pelerin Society General Meetings, Salt Lake City, August 15-20, 2004.  Plenary address on: “Institutions of international decision making: the United Nations”
  • The World Bank, PREM Conference, Washington DC, April 27-28, 2004.  Debate with Jeffrey Sachs on: “Economic policies for failed states”
    http://www.nytimes.com/2004/11/07/magazine/07SACHS.html?pagewanted=all&_r=0
  • European Public Choice Society, Berlin, April, 2004. Plenary lecture on: “Development failure”
  • Nanyang Technological University, Singapore, Public lecture, “Why are some countries rich and others poor?” August 2000.
  • Israel Economic Association, Symposium on 50 years of Economic Research in Israel, April 28, 1999. Invited lecture on: “Political Economy”
  • European Public Choice Society Annual Conference, Prague, April 1997. Presidential Address: "Political economy and political correctness"
  • Mont Pelerin Society General Meeting, Cannes, September 1994. Plenary address: "Nostalgia, self-interest, and the transition from socialism"
  • European Public Choice Society Annual Conference, Portrush, April 1993. Plenary address: "The transition from socialism: Some comforting thoughts for adherents to a public choice perspective"
  • Geneva Environmental Meetings, Environment and Development: Conflict and Convergence, May 1992. Presentation on: "Environmental protection and international trade"
  • Annual Meetings of the Economic Association of Israel, Tel-Aviv, December 1991. Plenary lecture: "The political economy of international trade policy"
  • European Public Choice Society Annual Conference, Meersburg, April 1990. Plenary lecture on "International trade policy: Benevolent dictators and optimizing politicians"
  • Taft Lecture, University of Cincinnati, April 1989. Public lecture on: “Liberalizing socialist industry"

Teaching

  • Markets and public policy
  • Political economy and public policy
  • International trade

Personal

BIOGRAPHICAL NOTES – ARYE L. HILLMAN

Europe

I was stateless as far as I can tell when I was born in the U.S. zone of Germany in January 1947. My parents had survived the holocaust. There are different types of survivors, those who escaped by crossing into the Soviet Union after the September 1939 Molotov-Ribbentrop Pact (between Stalin and Hitler) that divided Poland, or were already on the Soviet side of the line, those who survived by hiding, and those who had to endure it all, as did my parents. I was an only child after the holocaust. My mother feared a return of what had happened and felt that she would be able to protect one child.

After liberation, in my parents’ case by the Red Army, survivors went home to see who was left alive (a case of a Schelling focal point). My father found my mother wandering around in Lodz. Poland could at the time be dangerous for survivors, in particular those seeking to reclaim property. In a pogrom against survivors in Kielce Poland in 1946, 42 Jews were killed and around the same number injured. My parents left Poland in 1946, crossing borders, and reaching a displaced people's camp in southern Germany, from which they moved to the nearby small town of Bad Wörishofen, where I was born. Bad Wörishofen is situated in Bavaria off the highway between Munich and Lindau. The town has spa waters that have purported curative properties and is well worth a visit. On my first return visit Bad Wörishofen in 1977, with the help of an uncle, I found the house in which we had lived. On a later visit, I located the kindergarten that I had attended and I believe that I may have found the out-of-town wooden hut in which we first lived situated between two small forests.

My first languages were Yiddish spoken in the house and German spoken in kindergarten and on the street. Yiddish remained the language of communication with my parents. The Yiddish language remains the basis for a culture that affirms my identity. A source of pleasure is for me to find Yiddish-speaking people with whom I can converse. Yiddish, although consisting of old-German with some additions of Hebrew words, is basically untranslatable, because of the pathos in the language. The language was a form of self-defense over the centuries for a people who, in a not always amicable world, had no other means of resistance. The language is replete with subtleties that are not always precisely communicable.

In Bad Wörishofen my father made a living by arbitrage in the black market between goods supplied by U.S. soldiers and by local farmers. We stayed in Bad Wörishofen until late 1951. The original intent had been to move on to Israel. My parents were deterred by reports of lack of food and terrorist incursions. We moved to Australia.

 

Australia

We arrived in Sydney in early 1952 after a long boat trip from Marseilles through the Panama Canal and across the Pacific. On arrival in Sydney, we were placed in an immigrant hostel in Chatswood in North Sydney. My father found a job shoveling coal and my mother worked in the laundry of North Sydney hospital. My parents preferred a smaller town. They chose to settle in the town of Newcastle, some 150 kilometers north of Sydney. The economic base was the BHP steel works. The steel works are now gone. The air is clean and the beaches are beautiful.

I remember learning English. My first word was ‘window’. The classroom had windows and, in the type of gracious behavior that I found characteristic of Australia, the teacher wanted the migrant child to begin to learn the language. That was my first day at school. My best friend went to school barefoot, which I did also, not wanting to be different. Amazingly, in retrospect, shoes were not required at school, but this was the early 1950s in a large but provincial NSW town.

My parents opened a little clothing shop in our working class neighborhood of Mayfield. The shop was quite far from the main shopping center. At the time, the convention was that customers paid off their purchases on a ‘lay-by’ system and took their purchases home only when the installments fully covered the price. My parents’ customers could however take their purchases and pay over time. In the early 1950s, credit and trust were not part of the usual business model. The little shop in Mayfield may have been the first in Australia to allow customers to buy on credit.

Women came to my mother for clothes and, if a dress did not suit, she immediately said, contradicting usual marketing strategies, ‘take it off, not for you’, even if the customer liked the dress. My mother exhibited a holocaust-based compulsiveness that included an unwillingness to accept imperfection in the suitability for customers of the dresses that she sold. She imposed her taste on what she was prepared to sell to whom and the customers kept coming back. My mother was not well emotionally. The shop was her escape.

In a room behind the shop in Mayfield, my father continued with the tailoring of men’s suites that had been his means of staying alive during the holocaust. He told how being a tailor saved his life when he was caught stealing potatoes to supplement the starvation ghetto diet for his family. He was making a coat for the German officer who caught him.

My father in time became the honor local rabbi of Newcastle, which he could do because of his pre-war yeshiva studies. The English language was a challenge for him. He was learned in the traditional Jewish manner but was unfamiliar with Latin characters. My mother had gone to a regular school in pre-war Poland up to the age of 12. Polish uses Latin characters. Her English, spoken and written, became quite good.

At Waratah primary school (the suburb next to Mayfield), classes were ranked according to ability. In first grade, I began in the D class at the beginning of the year and was moved up sequentially through C and B to the A class by the end of the year. To this very day, I appreciate the objectivity applied to a child of 6. Someone must have singled me out and moved me up as my English improved.

An event in the 4th grade especially stands out in formulating my later perspectives. A student teacher took over from our regular teacher, put up a map of Asia, and asked for someone to come forward to point out where on the map the country of Pakistan was located. This was in 1957. The separation of Bangladesh from the rest of Pakistan would take place in 1971. But in 1957 west and east Pakistan made up one country, separated by India. I pointed on the map to both west and east Pakistan. But the teacher knew only about the larger west Pakistan and not the smaller east Pakistan on the Bay of Bengal. I was not mistaken. I appealed to the class for support on a simple objective fact, the location of a country on a map. No one in the class supported me. I returned to my seat in the class. But I had learnt a lesson to take through life, that appealing to majority opinion does not necessarily ensure a correct answer.

Still, democracy is better than the alternatives. The Condorcet Jury Theorem states that the likelihood of a correct answer determined by majority voting increases as the number of people participating in the decision increases. The Theorem however requires people knowing the correct answer with some positive probability in excess of a half.

After finishing primary school (6th grade), I was admitted the selective regional high school (Newcastle Boys High). I was thereby introduced to a milieu that I had not previously known of informed fellow students. There were motivated teachers. I was in the A class that studied Latin, which was a special privilege. The Latin teacher was said to be secretary of the local branch of the Communist Party and we were made familiar not only with Ovid but also Spartacus and the revolt of the slaves.

Communism focuses on equality of personal outcomes as the definition of social justice. There has of course never equality of personal outcomes where the communist system has been in place. Friedrich von Hayek, one of the great thinkers of the 20th century, pointed out that communism in practice was a hierarchical system ruled by a megalomaniac. In achieving the status of leader in a non-democratic system, the megalomaniac ruled over everybody and everything.

Social justice can also be defined as equality of opportunity. Everyone can run in the race but there is no requirement everyone finish together. The selective school system did provide equality of opportunity for admittance. But what of my neighborhood friends who were not offered admittance to a selective regional school and did not proceed after junior high school to further education? They left school at the age of 15 and might through an apprenticeship became a plumber or electrician, or they were destined for semi-skilled jobs in the local steelworks. The girls who did not make it to a selective school were destined to be secretaries and shop assistants or simply at the time to become at-home mothers, which is also what the girls who had made it to a selective high school might be. We can wonder if a selective school system whereby streaming at the age of 12 determined a child’s future was not a means of advantaging children of higher-income families. But then I was selected for admission. We certainly did not belong to the local elites.  

I won the local junior chess championship. In the final game I defeated the son of the professor who later was to teach me psychology at the local university. In the game, my opponent was way ahead on points. I had to come from behind with a surprising checkmate when I had few pieces left. There was another lesson learnt. Never give up and you can unexpectedly win.

Jeannette and I married in 1967. I was 14 years old and she was 12 when she had decided that she was going to marry me. And she did. There were special difficulties growing up in the house of survivors, who are fearful and whose memories stay with them. I was compromised in my own way by the holocaust and have needed the temperament of Jeannette who remains calm even if the walls seem on the verge of collapsing. She was going to join me on my therapeutic move to Israel and the intermediate way-station for graduate school in the United States.   

In the year that Jeannette and I married, I completed an honors degree in economics at the University of Newcastle. With 1st class honors and the University Medal, I was encouraged by Professor Warren Hogan, the department chair, to pursue an academic career. When Warren Hogan called to inform me that I had won the University Medal, I did not know that the Medal existed. I had to ask him what it was all about.

A Commonwealth (of Australia) PhD scholarship that I was awarded provided the option to study at the University of NSW in Sydney with Professor Murray Kemp, who had an international reputation in the field of international economics. I knew little about what a PhD entailed, except that I was to write a thesis. In the late 1960s, in Australia, there seemed to be no requirements for a PhD in economics of graduate course work. It was the English system of self-discipline with guidance from an advisor. Moreover, I was told that the only reason to do a PhD was to cover up the lack of first-class honors.

Professor Harry Edwards, who was at the time setting up the economics department at newly opened Macquarie University in western Sydney, convinced me that I could complete a PhD while teaching – and not much emphasis was placed on the PhD. I accepted a teaching position in 1968 and began a PhD at Macquarie. Noel Drane was the internal thesis advisor and Peter Lloyd from Australian National University was external advisor. I was happy to be able to contribute, years later, to Peter Lloyd’s retirement Festschrift. Harry Edwards left academia after being elected to the Australian federal parliament for the Liberal (actually conservative) Party and remained a backbencher for 22 years. With his Oxford PhD, he was surely a more competent economist than the politicians who were ministers in the government when the Liberal Party was in office. A further lesson is that a good economist is apparently not necessarily a successful politician. Honesty, forthrightness, and understanding the issues do not seem to be necessary requisites of political success. Self-interest tends to come to the fore in the form of need for political survival. My own forays into political surroundings revealed that politicians could feel the need to demean academic achievements in declarations such as: ‘You think that you are smart with your PhD but I have a PhD from the school of hard knocks and I know more than you about what is useful around here’.

Australia is not a place to leave. Nonetheless, we had intentions to move to Israel. Intentions can indefinitely remain intentions, in particular when life is comfortable. In 1970, I resigned from a tenured position at Macquarie University and left with Jeannette and our two young daughters Tamara and Ilana to begin graduate school at the University of Pennsylvania in Philadelphia. The plan was, after this way-station, to proceed to Israel.

 

The U.S.

The road to an academic position in Israel went through a leading graduate school in the United States. Don Patinkin, who had arrived in Israel from the University of Chicago in the early years of the modern state and was the father of academic economics in Israel, had ensured that academic standards in economics in Israel would be high. Patinkin was well-known in the economics literature. The Patinkin real-balance effect is named after him.

While still in Australia, I had been offered a Nuffield Fellowship for study at Oxford University, but preferred the U.S. where graduate training was more rigorous. Various U.S. graduate-school scholarship offers that I received were for one year contingent on academic performance. I was risk-averse. Gerry Adams, head of the Economics Research Unit at the University of Pennsylvania, offered a guaranteed three-year appointment as Research Fellow. The position paid tuition and provided a small stipend and health insurance. Jeannette’s U.S. visa did not allow her to work but she volunteered at the local pre-school that our daughters attended. We asked for no financial assistance from our parents, who must have thought it unusual or even not-well-thought-out to resign from a tenured university position and move with two small children to the U.S. for graduate studies with a fellowship that assumed an unmarried graduate student and not a dependent wife and two children.

At Penn, I once more found myself again in a surreal world (like the first days at the selective high school). Fellow students included graduates from prestigious universities. Graduate school teachers included Irving Kravis, Wilfred Ethier, Albert Ando, Thomas Sargent, Oliver Williamson, Lawrence Klein, and Karl Shell. Sargent, Williamson, and Klein went on to receive a Nobel Prize.

The three-year fellowship set a time-limitation for my completing the PhD. Usually at least 4 years were required to complete the PhD program. We did not have the financial means to continue after the Fellowship funding ceased. Zvi Adar, a graduate student ahead of me, who subsequently became a professor in the Tel-Aviv University business school, gave me the invaluable advice to choose an advisor who had completed his own PhD thesis in a short period of time. I had nine months left of the Fellowship when I approached Albert Ando, who taught the public economics graduate course, and asked whether the remaining time was sufficient to write a thesis. Albert replied ‘I wrote my thesis in three months and I am three times cleverer than you, so you should be able to finish in nine months’ – which I did. The thesis combined international and public economics. Bill Ethier was co-advisor, although in effect principal advisor.

As the end of the three years of graduate school approached, Irving Kravis, the senior international-trade professor at Penn at the time, offered to propose me for a position in a leading U.S. department (Stanford). I asked instead for a recommendation for a position in Israel. Thanks to his letter of recommendation, I received an offer from Tel-Aviv University. There was however another detour. Our financial resources, not substantial in the first place, were depleted, and, although my thesis had been accepted, I had to make ‘revisions’. We stayed in the U.S. an additional fourth year. I took an income-maximizing offer for a one-year visiting appointment, at the University of Illinois in Urbana. Downstate Illinois provided a different view of the U.S. We were introduced to a culture of identification with success through sports. The university had nationally ranked football and basketball teams.

 

Israel

We arrived in Israel in June 1974, with now four children, ranging in age from 6 years to 3 months, with our sons Nachman Eliyahu (Eli) and Benjamin as additions to our two daughters with whom we had arrived in the U.S. We had never previously been in Israel, which had been for us a concept rather than an actual physical location. We had not been aware of the ideological divisions in Israel. The universal-values ‘left’ was deeply entrenched in academia, and in government departments, the Bank of Israel, and the High Court. The ‘left’ had been instrumental in the creation of the restored state of Israel. The Jews returning to Israel from the later part of the 19th century on, did what Jews had not done during the near two millennia of exile – they defended themselves and they worked the land.

The kibbutz was the most visible tip of an encompassing collective economic system. The Organization of Workers controlled both the workers’ union and much of industry. There was little or no competition. Competitive domestic markets and competitive imports would have compromised workers’ job security and were inconsistent with the model according to which the economic system was organized, which was neither planned socialism nor market capitalism but something in between that could be defined imprecisely as ‘market socialism’. By default, ‘market socialism’ arose in the various economies in transition from socialism after 1990 when planning was abolished but privatization of state factories had still not taken place. When privatization took place in Israel, it was not the state selling its factories as elsewhere. A political party was selling the factories that were controlled through ‘the holding company of the workers’. 

My 1988 paper ‘Impediments to a competitive environment in Israel’ described the monopolies and cartels, and the means of restricting imports that were used notwithstanding free trade agreements since 1980 with the United States and Europe. At a conference in New York at which the paper was presented, I was accused by captains of industry in Israel of ‘siding with the Americans’. The captains of industry were senior managers in monopoly companies or in cartels such as was the banking system. The Americans were demanding compliance of the government of Israel with the U.S.-Israel Free Trade Agreement of 1980. Although perhaps once necessary, the socialist model was not going to be effective in the future. The economy of Israel needed competition, and also innovation that socialist governments tended to resist because of the threats of new technology to workers’ job security.

Among academics in Israel at the time, I found myself well in the minority. There was a dimensionality other than economics to the ‘left’. There was also abandonment of Jewish tradition. The premise of the left was (and is): ‘If we do not insist on our traditions that separate us from others, we will be more liked.’ My father told me how in pre-world-war-two Poland he would approach Catholic Poles and declare that “the enemy is the capitalist’. When I had asked him why he continued to vote for the left, he told me how, when he was with communist partisans toward the end of the war, a Polish nationalist group had arrived and demanded from the communists that they give them the “Jew”. The communists refused and my father felt that he had an eternal debt. There must have been many like my father. 

In the economics department of Tel-Aviv University, I had excellent colleagues. Elhanan Helpman and Efraim Sadka arrived when I did, having respectively studied at Harvard and MIT. Elhanan Helpman seemed focused on broader recognition than he believed possible as an academic in Israel and in the end accepted a position at Harvard. Efraim Sadka went in the direction of local business activity. There was a strange almost schizophrenic internal conflict in some senior members of the department. A senior theorist had for example been brought up a most left-wing kibbutz (there were ‘degrees’ of left) and had studied at the paragon of free-market economics, the University of Chicago, and openly retained leftist association with principles of the left. For others there were rewards. A senior professor became chairman of the board of directors of the flagship Bank Hapoalim (the Bank of the Workers). I was soon to begin to study rent seeking.

An anomaly in Israel was political-party constituency. The Labor Party had ruled exclusively in various political combinations from the first general election in 1949 until the 1977 general elections. After the latter election, prior opposition leader Menachem Begin had sufficient support in the Knesset (parliament) to form a government. According to the model, he was however expected to remain indefinitely as the leader of the opposition. His purpose was to show that Israel was a democracy.

Pre-election advertisements had shown a car careering down a street and hitting parked cars, with the commentator asking: ‘if someone had failed their driving test 8 times, would you pass him on the 9th attempt’, referring to the past elections that Menachem Begin had lost. He had been a loyal leader of the opposition.

After the 1977 election, there were murmurings from high-level Labor party officials that ‘the people have made a mistake’. Although Begin’s coalition had a majority in parliament, control over the institutions of the state did not change. Israel was to be in for a bout of hyperinflation to show who was required to be in office if there was to be financial stability. Inflation ceased in 1985 with a price-stabilization plan, but also after the leader of Labor Party was given the position of prime minister without winning an election. The trade union could be instructed agree to cessation of the indexation that was driving the inflation. At least one well-known local economist sought the Nobel Prize for the ancillary policies.

The Labor Party in Israel was not the party of the workers. The Party rather represented the privileged segments of society, including the managers of factories and businesses of the ‘workers’ sector. Select families were given food and cigarette monopolies. In my 1988 paper, I called this a ‘system of responsibility’. Each designated family had the responsibility to ensure supply of a product. The government did not want to hear that a shortage of pasta, for example, was due to ‘market conditions’. Someone was responsible for supply.

The monopolies and cartels, and trade restrictions, although formally justified by the ideology as protecting workers’ job security, were sources of privileged benefits (or in economic terminology ‘rents’) for the privileged families and the managers of the factories and businesses of the ‘holding company of the workers’. Socialism seems inevitably to create a privileged class, who have not taken risks and accumulated assets themselves but control and live off the ‘property’ of the state or workers.

Heading north from the lower-income suburbs of Tel-Aviv to the higher-income areas, including Ramat Aviv where Tel-Aviv university is situated, increases the share of the vote for the Labor party. Foreign leftist visitors to Israel nonetheless ideologically identified with the Labor Party, which the workers did not support. Foreign volunteers came to work on the kibbutz, for no payment. Indeed, they might have to pay for the privilege. After they left Israel and returned home, they would not work for free but, perhaps some altruistic ventures aside, would work for payment. Bernie Sanders, self-professed ‘socialist’ candidate for the U.S. presidency, for example volunteered on a kibbutz in Israel. The kibbutz changed, first through diversification from specialization in agriculture into light manufacturing and then into hi-tech. Privatization in most cases took place.

There remain now few cases of a kibbutz organized along traditional collectivist lines. The original kibbutz system was the mainstay of the restoration of the state of Israel. The kibbutz provided security through organization with safety in numbers and the workers’ self-mamgement of the kibbutz allowed avoidance of a low-wage monopsonistic labor market.

The electoral loss of the Labor Party in 1977 shook most academic economists. The new prime minister Menachem Begin had a deserved reputation for modesty and honesty. He was however disliked by the left, both in Israel and abroad. He rejected leftist principles, including the premise that, to ensure the respect of the European left and American liberals, the association of the state of Israel with Jewishness had to be de-emphasized. His being a traditional Jew placed him far from to the socialist universalist-principle ideal.

Life was not intellectually comfortable at Tel-Aviv University. My view of economics did not fit in with aspirations to replicate U.S. east-coast theory-oriented departments. Rather than pursuing merit through aesthetics, I was interested in explaining what I saw.

A paper in the AER in 1978 addressed the Leontief paradox of international trade by including energy as a factor of production. A paper in the Journal of International Economics in 1979 studied how embargo threats (such as to which Israel was subject) affected adherence to comparative advantage. Another paper in the same journal in the same year explained why tariff protection was not always completely utilized. I participated in an empirical project on the consequences of the Israel-Europe free-trade agreement that was to come into effect in 1980 (and I realized that the much-used measure of ‘revealed comparative advantage’ did not necessarily reveal comparative advantage). I also observed that many goods that were called public goods were not goods at all but were public inputs, which changed the way that ‘equilibria’ should be described.

In a department in which I broke a seeming anti-Begin consensus, and with my adhering uniquely among department members to Jewish traditions, there were ambiguities and tensions. I would not be staying at Tel-Aviv and in 1980 moved across town to more conservative Bar-Ilan University, the only university in Israel that was not founded under the auspices of the Labor Party. At Bar-Ilan, secular studies and Jewish traditions were viewed as quite compatible. Bar-Ilan was placed between two sources of opposition, the left on one side that sought to create the new man or woman who were devoid of traditional values; and on the other side orthodox Jews who reject the idea that anything beyond yeshiva learning is necessary and who object to male and female students in the same class as at Bar-Ilan.

Orthodox Jews continue to wait for the coming of the messiah to gather Jews from the corners of the earth to recreate that the state of Israel as the restored kingdom of David. But Israel has already been recreated and Jews ingathered. The conditions of the messianic age are present. Jews can defend themselves and there is food and economic sustenance. In 2020 per capita income in Israel (in current U.S. dollars) was above the EU average and exceeded that of France, Italy, and the U.K. The orthodox cannot however abandon their belief that the true reborn state of Israel is yet to come. Abandonment of the belief contradicts the foundations of their belief system.    

 

Political economy and public choice

At Bar-Ilan, I self-discovered the Public Choice School by reading the 1980 volume ‘Toward a Rent-Seeking Society’. The papers of Gordon Tullock and others in the volume were wise and immediately comprehensible. Here was economics that expressed ideas directly and did not hide behind a façade of exaggerated technicality and abstraction that was intended to pass for intellect and sophistication. The economics department at Bar-Ilan grew around specialization in decision theory and political economy, and in particular the theory of rent seeking. In our intellectual endeavors, we complemented the Public Choice Center in Virginia.

We were always kind to (in citations) and supportive of the Virginia School. I have no answer when asked why no member of the Bar-Ilan department (or for that matter any university in Israel) was ever invited to join the editorial board of the flagship journal Public Choice. Perhaps we were regarded as rivals. Although we regarded ourselves as their allies.

At Bar-Ilan I could freely develop ideas on political economy, or how politics influences economic outcomes. I did not have to be on the lookout for ‘bandwagons’ and engage in discussions about how to contribute to ‘hot’ topics.

In two papers in the QJE in 1985 and 1987, Ngo Van Long and I studied political-economy aspects of depletable natural resources. The politics in the first case were through a trade embargo. In the second case the members of the international oil cartel also monopolized international markets through their cartel rents and hence influenced both sides of the Hotelling rule for extraction of natural resources.

Three papers in the AER in the 1980s addressed the political determinants of international trade policy. My 1982 paper described political motives as underlying protection of industries that were in decline because of changes in international comparative advantage. My view went against the grain of explanations for protection of the time that described governments as choosing departure from free trade for efficiency-related ‘second-best’ reasons. In textbooks, the question of why socially beneficial free trade was not chosen was not addressed. The textbook that I was using to teach had a chapter of the benefits of free trade and then a chapter on the consequences of departure from free trade. A 1986 AER paper with Jim Cassing showed how political motives could underlie industry collapse. A further 1988 AER paper with Henry Ursprung described trade policy as determined through competition between candidates for political office and showed how the assignment of quota rents to a foreign importing cartel (that existed) was politically preferred to tariffs. My colleagues and friends Gene Grossman and Elhanan Helpman took up the political theme of trade policy in a successful paper in the AER in 1994 that described how rent-extracting political sellers of protection to industries would determine the structure of protection. 

In subsequent research with Peter Moser and Ngo Van Long we developed the idea that trade liberalization was also a political-economy phenomenon, in the form of politically optimal exchange of market access. Trade negotiators talked of 'concessions' they made in allowing producers to access each other's markets. The more traditional idea of trade liberalization was as a retreat from 'optimal tariffs' imposed for terms-of-trade reasons. No government has ever used monopsony power in international markets to impose optimal tariffs. The political-economy theme of trade liberalization was also taken up in subsequent literature, again by Gene Grossman and Elhanan Helpman. Their abilities to formulate elegant models pushed the political-economy approach to international trade policy into the mainstream. 

I found amazing the wide interest in the 1980s in a ‘strategic trade policy’ argument that advised governments to adopt policies that benefited firms competing in world markets. There was nothing said about the rents that such a policy would create and the rent seeking that would ensue, and the political benefits that would be available for political decision makers.

I have not been an iconoclast as a matter of principle, and not at all from the viewpoint of the public-choice school. I did not accept the at-the-time mainstream explanations for public policy based on the ‘public-economics’ model of benevolent government and often lump-sum taxes according to which, with Marxian connotations, people contribute to society according to their abilities and not according to reward. The lump-sum taxes allowed public policies to be presented as not incurring deadweight losses, so inefficiency did not impede distributional objectives. Lump-sum taxes do not exist or not used but nonetheless were mainstays in models of international trade and public finance.

The social cost of contestable benefits was identified by Gordon Tullock in a paper published in 1967. As described in a paper by Henry Ursprung and myself on academic exclusion, Tullock encountered impediments to publishing the paper – because of the implication that government policies could create privileged rents rather than governments being viewed as benevolently choosing socially optimal policies. Tullock was not unique in having been academically excluded, but the AER exclusion of his paper was by an editor who was an open avowed Maoist. In 1980 Tullock published a paper in which rent-seeking contests were won in the manner of lotteries (spending in contests increased the number of lottery tickets of a participant in a contest). Total rent-seeking outlays were less than the value of the contested prize, which could for example be monopoly profits. Dov Samet and I showed in 1987 that, in a contest in which the highest outlay wins, for any number of contenders, rent-seeking outlays on average equal the value of the contested prize. This was a useful conclusion. A prize in a contest is often observable but not the behavior of rent seekers contesting the prize. John Riley and I extended the model to the case in which the prize is valued unequally, in both highest-bidder-wins and Tullock-lottery contests. Rent-seeking models are interesting in showing that there are social costs of political discretion. The rent-seeking losses are added to deadweight losses of monopoly or taxes.

 

Visits abroad

In the age before the internet, visiting academic positions were a means of broadening perspectives. In spring of 1979 a visit to the Australian National University led to joint research with Ngo Van Long, Peter Swan, and Jim Cassing (who was visiting from the University of Pittsburgh). Max Corden, Fred Gruen, and Robert Gregory were there for interesting discussions. During a stay as visiting professor at UCLA in 1985-87, I benefitted from the intellectual depth of Robert Clower, Harold Demsetz, Arnold Harberger, and Jack Hirshleifer. Sebastian Edwards, Ed Leamer, David Levine, and John Riley were also stimulating colleagues. While at UCLA, I met Heinrich Ursprung, with whom a long research collaboration began. I benefitted from two semesters, separated by some years, at Princeton, where I had the good company of Gene Grossman and Avinash Dixit.

A stay in 1990 in the newly created Transition Unit of the World Bank under the directorship of Alan Gelb and subsequent return visits to the World Bank sponsored by Manuel Hinds provided opportunities to travel to and study transition countries at first hand. Being ‘on the ground’ and having opportunities for discussions with government officials reaffirmed my political-economy perspective on the transition from socialism. Political incentives and self-interest generally dominated the social good. A research program with Željko Bogetić of the World Bank continued over the years, including conducting a ‘trust-game’ experiment in Montenegro to determine if lack of trust was an impediment to a market economy.

Beginning in the year 2000, Vito Tanzi and Sanjeev Gupta, who had introduced recognition of corruption as an impediment to development into IMF research and policy discussion, invited me to participate in studies of low-income countries with staff members of the IMF’s Fiscal Affairs Department. During my initial visit to the IMF, I formulated a Nietzschean view of development failure. It seemed to me that the primary impediment to development in low-income countries was not corruption but rather absence of ethics. The strong at will appropriate the output of the weak, which undermines incentives of the weak to be productive. With the strong controlling the state through authoritarian government, the rule of law required is absent. The weak have an incentive to pretend to be lazy or unproductive, and to rely on non-appropriable means of happiness, such as music and dance. The domination of the weak by the strong includes the subjugation of women by men. I approached Stanley Fischer, then deputy chief of the IMF, and asked him whether it was acceptable to put out an IMF research paper on the themes of Nietzsche. He replied ‘fine as long as you do not blame the poor for their predicament’, which my Nietzschean explanation did not do.    

 

The peer-review system in academic economics

Gordon Tullock, the founder of Public Choice, proposed that 'people are people’ by which he meant that people should be expected to be guided by their own self-interest. Adam Smith had of course said the same and declared self-interest to be virtuous in competitive markets. Gordon Tullock emphasized self-interest in politics and government bureaucracy. ‘People are people’ also applies in academia. From the experience of 22 years as editor and editor-in-chief of the European Journal of Political Economy (from 1994 to 2015), I have come to understand the extent of discretion that editors have over what will be published and what will not. My co-editor Henry Ursprung and I aimed for objectivity and fairness with authors. We did not wish to treat authors as we had been treated by some editors, who had at times been arrogant and condescending, and for whom, in the absence of objective criteria for evaluating merit, the scope was present to favor friends and acquaintances, and perhaps authors from leading U.S. departments.

We have all seen papers in the ‘leading’ journals that are no better than other papers that we know were denied publication in the same journals. I have encountered excellent economists who did not wish to forgo their identity and location for a career at a ‘leading’ U.S. university. ‘Out of sight, out of mind’ applies when editors and reviewers make judgments that compare people who they personally know with others who are just names on a page. Experiments have shown that revealing a person’s face induces sympathy and cooperation. A face behind a name has been shown to change how people relate to others.

My time spent at UCLA and Princeton made evident that location matters in the academic world. ‘Leading economists’ people are at ‘leading’ universities, but they are also treated as being ‘leading’ because of where they are. Editors may be reluctant to reject mediocre papers from authors from ‘leading’ departments and the authors are designated ‘leading’ because of their publications.   

 

Activities and acknowledgements

Since 1989, Henry Ursprung and I have organized the Silvaplana workshop in political economy in the mountains of eastern Switzerland. The workshop was initiated to promote political economy when political economy was not mainstream. The workshop combines presentation of papers with mountain treks and on-the-way discussions. We issue an open call for papers every year. In 1994 Henry Ursprung and I were awarded the Max-Planck Prize for our research in political economy. In recent years I have benefited from having Niklas Potrafke as co-researcher. Niklas has joined me in empirically addressing interesting issues. I have also returned to a partnership with Ngo Van Long.

In October 2015, because of a legally specified age limit, I was obliged to change my status to professor emeritus. The change is fortunately inconsequential. I keep my office, students, research funds, and my professional life. A reduced teaching load provides more flexibility to travel.

I was proud in March 2016 to receive an honorary doctorate from the University of Genoa. The University has a long tradition, dating back to at least 1471. Genoa is the suggested birthplace of Christopher Columbus, who in 1492, the year of the expulsion of the Jews from Spain, discovered the ‘new world’ (which had of course always been there and the ‘discovery’ of which had adverse consequences the indigenous inhabitants).

I have maintained contact over the years with Bill Ethier, my graduate school advisor. We often attend conferences together in esoteric locations. Bill has told me that I am often ‘ahead of my time’. Which implies that I should wait. But I do not know what to wait for. Should I be waiting for someone from a ‘leading’ university to roll out the bandwagon for a topic that is then revealed as 'hot', through the signal given to write papers on the ‘hot’ topic to benefit from the externalities of citing reviewers' papers?

It was a thin thread from my siblings who did not survive the holocaust and myself as the only subsequent child that my parents would dare to have. From our 4 children, we have 18 grandchildren, and to date 4 great grandchildren. All are in Israel. It is telling about who we can rely on that we are openly threatened with annihilation by the mullahs of Iran and there are those who tell us not to take Iranian threats seriously. What would these same people said of the threats of Hitler? Indeed the Czechs were betrayed in 1938. And is it coincidental that only the Czechs provided weapons for Israel in the 1948 war of independence when all other governments placed embargos on the nascent state. The Israeli militias were not expected to win against six Arab armies.

I no longer partake in debates on the subject of Israel. People are for us or against us, or indifferent, the primary influence being emotion rather than facts.

I thank Jeannette, for everything.

I thank Bill Ethier for having made possible my academic career, and my colleagues and friends including Bill for joining me in the various research ventures that we have undertaken in which we were not always on the side of the majority defending their mainstream.    

Arye L. Hillman

August 6 2020