Addressing the Squatter Problem in the Philippines:
Insights from the Community Mortgage Program
Marife M. Ballesteros
Philippine Institute of Development Studies

To address the growing problem of squatter communities in key urban areas in the Philippines, a community mortgage program (CMP) was conceived to allow organized communities of the landless urban poor to purchase residential land and thereby enjoy security of tenure.  The CMP is funded through government budgetary allocation and loans are provided at concessional terms and fixed for a period of 25 years.  The land is titled to the community and joint liability is implicitly provided since 100% collection efficiency is required before community title can be unitized (individual titles).

The study aims to examine the following issues:  first, what has been the effect of the program in the overall housing problem in the country.  As it stands, the program is designed mainly to help squatters purchase land.  However, it does not offer much to low-income renters neither to better housing facilities for the poor.  The scheme also does not offer much choice to landowners and the issue of whether CMP should take precedence over best use of land arises. 

A second issue is: Can collective security or solidarity group dynamics work for housing?  Lending to the poor through groups rather than individuals has become a well-established scheme for micro-enterprise activities.  This scheme is now becoming popular in providing financial services for the housing needs of the poor.  The literature on group lending shows that certain group dynamics (e.g. peer pressure, group solidarity) have had positive effects on repayment.  These behaviors have been seen to work well for micro enterprise credit.  However, collective security may not work as well in housing specifically in the case of the CMP due to the following: (1) longer term of housing loan; (2) highly heterogeneous households; (3) group size of about a hundred households: (4) problems of “professional squatters” and the “unitization” of land title being tied to community loan tend to aggravate domino effect for non-payment.

The third issue is: How can subsidies be better targeted for this type of program?  While there are households that are able to pay for a loan, it is also equally true that there are households that cannot take in any magnitude of loan.  If security of tenure for a household is tied on repayment, then it is possible that poor households are “forced out” of the program.

The research is based both on quantitative and qualitative analysis obtained from structured interviews with households in selected communities, in-depth interviews with community officers, administrators of the program, households, NGOs and local government units and data from CMP management group.  Initially findings of the study show that 724 squatter communities benefited from the program.  However, loan recovery performance is poor and the sustainability of the program is doubtful.  Its collection efficiency rate is currently 70% (the highest among government housing programs) but declining over the years.  Overdue payments show that 61% of community accounts are at least six months overdue.  Moreover, there is a weak correlation between income levels and default rates, which imply that poor repayment is not entirely a problem of resource constraint.  Corollary, it is possible that squatting is not necessarily a result of poverty.


Political Credibility and Economic Development: A Case of Azerbaijan
Vugar Bayramov
Azerbaijan State Economic University

Problem
Lack of political credibility, legal guarantees had scared away investors, had hindered economic development and economic growth in Azerbaijan.

Main points
Many political actors have incentives to extol the virtues of economic reform. Some of these incentives arise because reform promises can bring political and material benefits. If such promises draw political support, then they can bring the rewards of controlling government.  In Azerbaijan 2 years ago, a government promised the IMF that it would: do structural reforms of the Cabinet of Ministries, abolish social privilege, undertake banking reforms, and privatize some state-owned enterprises. In exchange, the IMF agreed to loan funds to Azerbaijan.  The government did not keep its promises concerning privatization, structural reforms, and social privileges.  It was a credibility problem; the IMF made loan, but the government did not keep its promises.
Another part of my project is on credibility and economic reforms. In Azerbaijan the credibility criterion is at the heart of debates over the timing of economic reform.  In a country embarking on a transition to capitalism, policy credibility is an especially important issue because of the revolutionary nature of the societal transformation. 

Questions
I started my research by considering Azerbaijan as a case of a “noncredible” political system and then I considered some important factors. When should we expect Azerbaijan politicians to keep their promises to reform? And more importantly, given the often complex machinations that determine a political leader's or government’s ability to keep reform promises, are analysts looking in the right places for the clues that will help them better anticipate which reform plans will succeed?

Objectives
To understand better the importance of political credibility in the development of Azerbaijan economy, and discuss the institutions that shape Azerbaijan corporate governance structure.  In Azerbaijan we should consider the following facts which are directly connected with creating political credibility.  The first point is that the media are not under the direct control of the government; media organizations compete for attention from the audience of enfranchised persons.  There exist competitive, adversarial political parties, where the political parties are sufficiently organized and resourceful to gather and distribute reform-relevant information. However NGOs can play significant role of establishing of credibility.

Expected Results and Conclusions
Discussion of the importance of private sector responses to low political credibility;
Discussion on how to establish the political economy of credibility which is the main step in creating political credibility to develop countries’ economy;
Determining the relations of political credibility and economic growth, and discussing the importance of legal guarantees; 
Discussion of the problems of stateless societies;
Determining the sources of political credibility.


Trust and Efficiency of Institutions
Matej Cepl
Northeastern University

Fukuyama (1995) presented a powerful concept of the trust in the community. However, the concept was created only for large-scale nation-wide level. I would like to research how well this idea of self-structuring trust in community works on small-scale individual community level.

According to Berrien and Winship (1999), which is the current study of the Boston development in the homicide rate, the crucial element in its decrease (especially in the poorest neighborhoods of Boston--Dorchester, Roxbury, and Mattapan) was ability of community to accept need of change, establishment of institutions inside the community and even more importantly establishment of trust between the community and the official anti-crime agencies (mediated by the Ten-Point Coalition stepping-up as an intermediary entity by both parties).

Long line of research beginning with Banfield (1958) declares that community cannot function unless there is a level of trust in such community allowing individuals to cooperate with one another. However, it is obviously not possible to create a cooperative environment without assistance of the institutions providing backbone to the community. It seems that exactly this interplay between the institutions (in this case police and social services) and local community made the difference which turned the tidal wave of rising homicide rate, when other methods (esp. total use of force trying to ``crack down on crime'') manifestly failed.

The purpose of research is to find whether this theory that the cooperation and trust between police and the community really made the decisive role in the change in community, whether such change was long-term, to describe mechanisms which made the change possible, and how institutions (both official and spontaneous) participated in the change.

The research will use method of the qualitative analysis on the front-end, supported by historical research and quantitative analysis as a background. Therefore I plan to interview both members of the community as well as officials of the police and municipal social services. The historical and quantitative analysis would be used mainly for finding, whether the different development of crime in Boston was not caused by other specific characteristics which cannot be attributed to actions of researched behavior.

Bibliography
Edward C. Banfield.  The Moral Basis of a Backward Society.  Free Press, 1958.
Jenny Berrien and Christopher Winship.  Should we have faith in the churches? The Ten-Point Coalition's effect on Boston's youth violence. Harvard University, July 1999.  Available on www.wjh.harvard.edu/soc/faculty/winship/winshipp1.pdf.
Francis Fukuyama.  Trust: The Social Virtues and the Creation of Prosperity.  Free Press, New York, first edition, 1995.


DETERMINANTS OF VERTICAL INTEGRATION: AN EMPIRICAL ENQUIRY ON RECENT DEVELOPMENTS IN COMMUNICATION AND COORDINATION ISSUES
Isabel Diez-Vial
Universidad Complutense de Madrid and University of California, Berkeley

This research project identifies and assesses the factors that govern vertical integration decisions. Transaction cost theory is combined with more recent contributions from the resource-based and knowledge-based views into an integrative perspective. Seven hypotheses are advanced and tested in a sample of 155 firms using a survey data gathered across the whole span of the Spanish meat industry value chain.

The relevance of the investigation is precisely this integrative perspective, which should help us to explain unexamined issues – for instance, why don’t firms always insource non-sequential stages in the production process, as transaction cost economics would assume, or how different interdependences among stages influence on vertical integration, or, finally, do different kinds of uncertainty affect differently on vertical boundaries? On other hand, the previous literature is also expanded on in other novel way. I innovate methodologically, gathering primary data on a firm’s first decision of insourcing after entering in the industry. This methodology not only highlights the rationality in the decision-making –It is the first reestructuration in the firm’s vertical integration strategy- but enables the selection of a sample containing a variety of transactions along the value added channel and not just one kind of transaction across a number of similar firms, as in most of the literature. The meat industry was selected given its market structure, maturity and especially relevance to economic development in emerging countries.

The results, which were obtained using a Tobit and a ordered Logit models, show that firms vertically integrate with the aim of creating interdependencies –specific assets and shared resources-, introducing technological changes in different stages of the production process and guaranteeing a level of quality or quantity in their supply of raw materials or distribution of their products. On the other hand, firms prefer remain specialized and flexible more under unpredictable large-scale changes in demand. This results were obtained both demand uncertainty individually considered and jointed with the presence of interdependencies. Finally, internal organizational cost did not influence on vertical integration decisions.


Selling the State: Political Privatization in Post-Socialist Countries
Martin Dimitrov
Stanford University

This project asks a simple question: what happened to the bureaucracies of the socialist state? How do they operate in the post-socialist period? Despite its central significance to understanding the political logic of post-socialism, the functioning of the bureaucracies in transition economies has been ignored by political scientists. As I will argue, this lack of analytic focus on government agencies has led scholars to miss a watershed change in the way bureaucracies function in the post-socialist period. In parallel with economic privatization, another process has been unfolding throughout the former Eastern Bloc: the commercialization of bureaucratic office, which I call "political privatization". What this means in practice is that just as the assets of state-owned enterprises were up for redistribution after the end of socialism, the assets of the government bureaucracies could be bought and sold to the highest bidders. In essence, bureaucratic officials treated their public office as a private firm that would bring them personal gains. The bureaucracies could offer two scarce public goods: regulation and its subsequent enforcement. As my research shows, in the post-socialist period both regulation and enforcement could be obtained by private agents for a price. In the absence of meaningful control, the bureaucracies produced too many regulations (thus giving rise to over-regulation), which they then enforced selectively (due to the impossibility to enforce every relevant regulation at the same time). Given the inability of the central government to effectively implement anti-corruption strategies in order to punish transgressing officials, this inefficient system has become institutionalized, and will most likely persist and continue to undermine the ability of the post-socialist state to govern.

This research is based on primary fieldwork in three former socialist countries (China, Russia, and the Czech Republic). I conducted a total of 220 interviews in those countries in the 2000-2002 period, focusing on the transformation of the bureaucracies engaged in the enforcement of intellectual property rights (IPR). My most striking finding was that the political system (democracy or non-democracy) had no impact on the way agencies functioned. Non-democratic China and the democratic Czech Republic and Russia had developed an essentially identical system of institutionalized bureaucratic corruption, where officials exploited their public office for private gains. In effect, all three countries had undergone a process of political privatization producing negative consequences commensurate to those engendered by the misguided economic privatization process.


WHY ARE THERE SO MANY FIRMS IN EGYPT?
WHAT’S “VERTICAL INTEGRATION” GOT TO DO WITH IT?
Amirah El-Haddad
University of Maryland

According to the World Business Environment Survey (WBES), 60% of private manufacturing firms in the MENA Region are small enterprises. This proportion is a much higher proportion than any other region (WBES, 2000). Moreover, Guigale and Mobarak (1996) report that small and micro enterprises represent nearly 98% of private firms (even higher than the MENA region’s already high proportion), they create three quarters of all private jobs and are estimated to produce 80% of Egypt's private value added. Are these figures an implication of a lack of vertical integration in Egypt? If so, what is special about the Egyptian institutional environment that leads to this lack of integration?

Analysis of the boundaries of the firm has experienced substantial evolution. Neoclassical approaches assumed the costless operation of the price mechanism and largely ignored the role of institutions, explaining firm size by administrative under and overload. Criticizing these theories, Coase (1937), introduced analysis of the determinants of the boundaries of the firm. The make or buy decision or what is termed in the literature as “Vertical Integration” pertains to the fundamental question of the “Boundaries of the Firm”. Investigations into vertical integration inspired both alternative as well as complementary theories. A simple classification of these would be The New Institutional Economics (NIE) theories, agency theory and other theories.

According to Williamson (2000) both Transaction Cost Economics (TCE) pioneered by Williamson as well as the Property Rights Theory (PRT) in its modern form initiated by Grossman S., Hart O. and Moore J. fall under the realm of the NIE. Williamson (1979) asserts that the larger the level of asset specificity, the higher the frequency of transaction and the higher the degree of uncertainty the more likely it is to observe vertical integration.  Under the special case of the manager and the owner of assets being the same person Grossman and Hart (1986), Hart and Moore (1990) predict that in an environment of ex ante incontractability, the more the specificity of investments, the more the chance for opportunistic behavior and hold up problems the more it is likely to observe vertical integration as a way to overcome such problems.

In a multitask framework Holmstrom and Milgrom (1994) and Holmstrom (1999) adopt an “agency” perspective to the integration decision. The authors predict that the hierarchy is preferred when it is difficult to measure an agent's performance on important tasks and/or when difficult to measure non-selling activities are important. This is so because it is only within the hierarchy that complementary incentive instruments can be used to balance the incentives of the agents.

Other theories stress other aspects. For instance, Birger Wernerfelt (1997) distinguishes between three different governance structures of a buyer seller relationship: the hierarchy, the price list and negotiation as needed. Depending on “communication costs” the author proceeds by setting conditions for the efficiency of each governance structure. Others suggest that country specific characteristics such as family operated firms, standardized production techniques, non-growth conducive macroeconomic environment as well as institutional constraints (e.g. the judicial system, lack of alternative dispute resolution mechanisms…etc.) are constraints to firm size and in turn to vertical integration (Fawzy, 1998).

I am planning to develop a single empirical framework to test competing theories in the context of Egyptian Industry (possibly textiles) and so explain relative degrees of vertical integration between firms (or sectors). This analysis will highlight critical factors in Egypt’s institutional environment and thus suggest institutional reforms to improve economic efficiency. My paper will out-line my research strategy, including the model specification, variable definition and survey design.