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IN THIS ISSUE:Book review:The Guide to Reform P3

Book review:The Guide to Reform P3

Spotlight on IntellectualProperty and CompetitionProgramme P7

Think Tank Profiles P8

Turkey as an Energy Bridge P12

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STOCKHOLM NETWORK CONNECTING THINK TANKS, CREATING IDEAS

Just as there is no such thing asa free lunch, one may argue thatthere is no such thing as an entirelyfree market. For the market tofunction successfully, especially intoday’s complex and interconnectedglobal economy, all the playersneed to know the rules of the game.So to what extent – if any –should governments intervene infinancial markets, both in terms ofregulating them but also in termsof policing them?

Global arrangements concerning capitaladequacy requirements, for example, the so-called Basel I and Basel II frameworks, touchupon this delicate relationship between statesand markets.

When the global economy is in good shapeand markets are on the rise, the need forsuch frameworks seems less relevant. Duringthese phases it seems self-evident to argue infavour of the efficiency gains of internationalfinancial liberalisation, and in particular that itimproves the industrial allocation of capital.In boom times, the supervisory role ofregulators is perceived as a stumbling blockto global prosperity.

However, when things turn sour and whenmarkets show their chaotic side – somethingwhich could not be more prominent than inthe current period of credit crunch, financialmeltdown and global bailouts - the existence

States and Markets general provisions, hybrid instruments andsubordinated term debt). Additional area ofdifficulty concerned which institutions should besubjected to the Basel I framework. It was arguedthat the Basel Accord potentially disadvantageduniversal banks of the European kind, which aresubject to capital requirements, relative to specialistfirms in the securities, insurance and consumerfinance area, which are not.

Basel II emerged in the late 1990s with theanticipation of providing a more robust frameworkfor regulating and managing the risk profile ofthe banking sector. It is based on three pillars.

The first focuses on the minimum capitalrequirements, taking into account the componentsof credit risk, operational risk and market risk.The second pillar focuses on the issue ofgovernance - essentially the degree of regulatoryand supervisory powers that should be used tooversee the successful implementation of the firstpillar.The third pillar of Basel II (Market Discipline)focuses on the disclosure requirements frombanks that operate in countries that adhere tothe framework.

Nevertheless, based on the current state of theglobal financial markets the easy answer would be tosay that Basel II is failing. Critiques of the frameworkcan persuasively argue that compromises reached inorder to allow for this framework to exist resultedin a very weak framework that lacked any real abilityto do much at all in terms of reducing risk andpreventing crisis.

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of such regulatory frameworks then starts toseem more important. And it is in this contextthat Basel I and Basel II should be considered.

The 1988 Basel Accord, negotiated andconcluded by the Basel committee of the G-10countries (operating under the Bank ofInternational Settlement), emerged as a responseto the financial fallouts of several Europeanbanks in 1974, most notably Germany’s HerstattBank.These failures emphasised the need for anagreement on bank supervision, especially in theEuropean markets. In other words, the generalperception at the time was that financial marketscould not just be left to their own devices.Theseproblems, combined with growing concernabout the divergence of capital adequacyrequirements between different monetaryauthorities, finally resulted in an internationalagreement - the Basel Capital Adequacy Accordof July 1988, otherwise known as Basel I.

Broadly, the framework aimed to establishminimum capital adequacy standards across themajor countries. Basel I set a minimum capitalstandard of 8% of risk weighted assets (of whichat least 4% must consist of ‘Tier 1’ or corecapital) to be achieved by the end of 1992. Since1988, this framework has been progressivelyintroduced by a number of countries.

Arguably, Basel I had several weaknesses. Forexample, it allowed for a significant degree ofnational discretion in terms of how countriesmight achieve the minimum requirements by the1992 deadline.The most noted example was thediscretion allowed with respect to ‘Tier 2’ capital(undisclosed reserves, revaluation reserves,

Photo:Shutterstock

which the nature of innovation will evolve andthe way in which demand for such innovationwill manifest itself.The case of the personalcomputer is just one example. Until the late1970s, it was the general consensus at all levelswithin IBM that the future of computing wouldbe dominated by the demand for computermainframes. It is reported that in 1977 KenOlsen, President, Chairman and founder ofDigital Equipment Corp. argued:“there is noreason for any individual to have a computer intheir home”. However, the market experienceda dramatic surge in household demand forpersonal computers. In just five years, the annualsales volume of personal computers matchedsales of the mainframe market, which had beenaround for more than 30 years. Despite itsfailure to predict demand, and contrary to othercompanies, IBM did produce its own personalcomputer and, by 1983, dominated the market.When asked why IBM chose to take this path,executives argued that “we realised thateverything we’d assumed, everything we were soabsolutely certain of, was suddenly being throwninto a cocked hat, and that we had to go outand organise ourselves to take advantage of adevelopment we knew couldn’t happen butwhich did happen”.Certainly, the professional pursuit of

innovation underpins the ability to introducenew products to the market. But, of equalimportance is the fact that innovation can beunpredictable, influenced by external events andultimately nurtured by the ability ofentrepreneurs to identify and seizeopportunities once they present themselves.Technological innovation is deeply rooted in

market forces. It is the incentives and rewardsthat the market provides which drives innovatorsto make the risky, time consuming and costlyinvestments needed to bring new products tothe market.The innovation process is driven bythe voluntary will of the innovator to create anduse knowledge rather than any form ofcompulsion.The voluntary market-driven effortsof innovators form a bottom-up process.If we accept that technological innovation is

based on these voluntary, market-driven efforts,certain mechanisms do need to be in place.One such mechanism is the existence ofintellectual property rights (IPRs) which providethe incentives both for the creation and the

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Yet despite such valid criticism, the achievementsof the Basel I and Basel II frameworks shouldnot be underestimated. One should first askwhat could have happened to the bankingsystem in the recent period if this frameworkhad been absent. Of course, the situation couldhave been better, but it is equally plausible thatwe would have experienced much worse crisesthan we have seen to date.

At times where banks and other well-knownhousehold financial institutions turn to the statefor help and rescue, it reminds even the mostfervent supporters of the free market that aframework such as Basel II is needed.

The question is not whether we should have itor not, but rather how can we make it betterand more effective. Indeed, in order to meetthese challenges, in July 2008, the BaselCommittee on Banking Supervision (whichoperates under the auspices of the Bank ofInternational Settlement) has put forward aproposal for revisions to the Basel II market riskframework.* Emphasis was given to moreenhanced supervision of assessment of risk, bothinternally as well as by the regulator. Also, as partof its efforts to make Basel II more effective,The Basel Committee on Banking Supervisionannounced in January 2009 that it is broadeningthe mandate of its Accord ImplementationGroup to concentrate on implementation ofBasel Committee guidance and standards.

The current condition of the market offers anopportunity to treat the Basel II frameworkmore seriously and to understand that checksand balances are needed for the internationalbanking system.

However, it is equally important to rememberthat today’s economic downturn should notbe used - or abused - to present very rigidregulatory requirements that may stifle thefinancial markets and their ability to innovate.The next few months will be about tryingto strike the right balance between statesand markets.

Helen Disney is Founder and Chief Executiveof the Stockholm Network

A version of this article first appeared in the15 September 2008 issue of Quantum Magazine

STATES AND MARKETS …

CONTINUEDIF IT AIN’T BROKE,DON’T FIX ITIt would be hard to find anyonewho actively opposes the conceptof innovation. Both developed anddeveloping economies now recognisethe importance and impact ofinnovation on their national economicperformance, global competitivenessand overall wellbeing.And, in the ageof the ‘knowledge economy’ therehas undoubtedly been intensifyinginterest in identifying the desiredset of policy tools needed toencourage innovation.

Innovation is, however, a complex concept, andtakes place in various shapes and forms. It is asocial and economic phenomenon as much asit is a technological one.The study of innovation is constantly evolving,

adding to our knowledge and understanding ofhow innovation takes place and how it may beimproved or enhanced. Equally challenging is theattempt to understand further the relationshipbetween knowledge and innovation. Forexample how does the creation and use ofknowledge lead to more innovation? And towhat extent do new innovations increase ourknowledge? In other words, innovation is sucha complex and deep concept that it would beimpossible and even presumptuous to try toargue that one is able to predict and controlthe process.Despite its complexity, however, we can still

identify some governing patterns that underliethe innovation process.First, technological innovation cannot be

characterised in terms of ‘good’ or ‘bad’innovation. In some current public discussionsthere is a tendency to argue that incrementalinnovation contributes less to society thanradical innovation and, as such, is less desirable.In other circles, innovation that focuses on thecomponents of a product is afforded a higherstatus than innovation that concerns the mannerin which such products are introduced to themarket and to the public. In real life, though, thecontribution of innovation to society cannot becategorised in such a simplistic way. Incrementalimprovements can have effects which are just assignificant as radical innovation, while innovationsthat concern processes and architecturessurrounding a product may be as essential tothe market and to the public as the originalproduct innovation itself.Second, technological innovation cannot be

dictated or anticipated via top-down processes.History suggests that even the brightest mindscannot be expected to anticipate the manner in

Photo:Shutterstock

*Basel Committee on Banking Supervision, Consultative document, Proposed revisions to the Basel II market risk, framework (July 2008),http://www.bis.org/publ/bcbs140.pdf?noframes=1

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exchange of knowledge for the sake ofpromoting technological innovation. IPRsfunction as a safety-net that allows the processof knowledge creation to take place, not leastin the phases that precede the introduction ofthese technologies to the market. IPRs also allowentities to exchange and share their knowledgeassets in a manner that guarantees theirexpected share of market reward from agiven innovation.Nevertheless, it seems that a perception is

emerging in some segments of the policy-makingcommunity that the use of compulsory, non-market-driven tools in the private sector willlead to greater innovative output, compared tothe existing models of innovation that are basedon voluntary market-driven efforts.With regardto the compulsory aspect of the above model,we can broadly define the term compulsory asthe act by a national or supra-national authorityof forcing the innovator to give up (in total or inpart) proprietary knowledge assets, be theytechnology, knowledge, know-how, or tradesecrets. Compulsory practices can be basedeither on the specific revocation of the legalrights of the innovator to prevent others fromfree-riding his proprietary knowledge assetwithout his permission, or by forcing theinnovator to actively disclose all the particularsrelevant to the use of knowledge assets.But leaving aside specific industrial sectors, and

looking at the theory as a whole, supporting acompulsory, non-market driven model topromote innovation could prove highlyproblematic. First, it is not backed up bytheoretical or empirical underpinnings. On thecontrary, much of the theory and empiricalevidence suggests that innovation does notseem to occur in this way. Second, it is morelikely that the exercise of this model is based onpolitical considerations rather than a rationaldiscussion of its merits.Third, it would seem thatadvocates of this model are suggesting turningthe process on its head i.e. they advocateimplementing the concept first in the hope andanticipation that it will work.Certainly experimentation with different

models of innovation is not something thatshould be prohibited, as long as theseexperiments are undertaken at the expense andefforts of those who wish to pursue them. Inthis case alternative models are being touted notas complementary innovation models but asreplacements to the long-established innovationprocess. In other words, the experimentation istaking place at the possible expense ofinnovation itself and, as a consequence, at theexpense of the consumer.

Helen Disney is Chief Executive and Meir Pugatchis Director of Research of the Stockholm Network

A longer version of this article first appeared inthe 17 December 2008 issue of Foreign DirectInvestment magazine.

What readers should get from this book is anappreciation of how far our experiences withfinance have come and how our global financialinstitutions and practices have developed. Onegets a profound impression from this chronicleof finance that there is so much that we canlearn from history in order to prevent pastmistakes, but also to attempt a reproductionof previous successes.What is clear is that thevalue of finance in society is overwhelming andits ability to enhance the lives of people, as wellas protect them from uncertainties, means thatno momentary crisis will be able to do awaywith its principles. Consequently, anyone lookingfor a sequel to this book entitled The Descentof Money will have an unrewarding search.

Overall, The Ascent of Money offers anintelligent and witty portrayal of our globalfinancial experience, which is both useful andmuch needed in the often naïve discourse onthe current financial crisis. Readers will alsotake away an important awareness of theirown association and connection to the financialworld, which begs the question ‘can you affordnot to buy this book?’

Paul Healy is Policy Analyst of theStockholm Network

Book Review:The Ascent of MoneyNiall Ferguson

Photo:PenguinPress

The year 2008 will surely berecognised by history as a financialnadir. Global stock markets haveplummeted, large financial institutionshave collapsed (or been bought out),and governments around the worldhave resorted to using public fundsto rescue various ailing industries.What better time then to considerhow we came to find ourselves insuch a volatile arrangement?

The Ascent of Money is more than just abiography of cash, it is an uncovering of theentire system that has been created becauseof money and a tool for understanding thepractices and institutions that affect, and enrich,so much of our lives.The book’s authorhighlights in advance the lack of financialawareness in current society and there will bemany who have felt ignorant about the changesthat have occurred in recent times.The Ascent of Money can act for many as aneducational device, a tool for comprehendingcontemporary crises and putting them into ahistorical perspective.

Like its companionTV series, this book separatesitself into six different sections that depict theascent of money, covering credit, the bondmarket, the stock market, insurance, real estateand international finance. Each chapter identifieskey figures and events that have contributed toour understanding and practice of financeincluding the Medici family, John Law, NathanRothschild, and George Soros.

Readers will be fascinated by the book’sinterpretations of how the real turning point inthe American CivilWar occurred before theSouth’s surrender at Vicksburg. Instead, the bookdetails how the South’s loss of New Orleans in1862, and its port used to export cotton toEurope, destroyed the value of the South’scotton-backed bonds forcing their economyinto ruin.

There is also an insightful account of thepension reforms in Chile that took placebetween 1979 and 1981 under the supervisionof Dr José Piñera, which resulted in sizeablereductions in government expenditure andhas furnished almost 7.7 million Chileans withprivate pensions.

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IS LISBON MAKING A COMEBACK?

But the research and recommendations ofboth the Lisbon Barometer and Explaining theLisbon Barometer were written in an economicclimate very different from the one of today.Then the Eurozone, the UK and the US wereonly entering a credit-crunch induced time offinancial and economic difficulties. Since then, wehave learned that the global recession will likelybe both more widespread (also putting theclamps on growth in the developing world andthe BRIC economies) and deeper. Global financeand banking remains in dire straits, internationalcredit markets are largely frozen, and packagesof government aid and loans, while averting adisaster, have contributed to the ever increasingbubble ofWestern debt. Clearly, the economicprospects of the EU are vastly different now(the beginning of 2009) than they were 12-18months ago, or in 2000 when the Agenda wasfirst launched.Where does this leave therecommendations of these two reports, letalone the future of the Lisbon Agenda? Doesthe original Lisbon Agenda – and its clunkiernamed successor the Lisbon Growth and JobsStrategy – have a real future?Most economists would agree that the

primary responsibility of national and localgovernments during difficult economic times likethese is to do everything possible to contain aneconomic recession from turning into somethingmuch nastier and more drawn out. Undercurrent circumstances one would be forgiven forassuming that long-term costly policies oninnovation, research and education wouldreceive scant consideration alongside moreurgent fiscal and monetary stimuli. But withregard to the EU and the Lisbon Agenda, suchan assumption could be mistaken.Indeed, the current Czech Presidency of the

EU Council provides a few clues as to the EU’scoming priorities. In their officialWorkProgramme, released only a few months ago,the Czechs commented on the relationship

between the current financial crisis and theLisbon Agenda, stating that ‘a significanteconomic slowdown underlines the importanceof the Lisbon Strategy as a set of instruments tostrengthen economic growth and resistance ofeconomies to internal and external shocks.’4From this it would seem clear that the goals ofthe Lisbon Agenda are still highly relevant to thelong-term economic health and prosperity ofthe EU. Could it be that the current crisisprovides the necessary impetus for finally makingthe goals of Lisbon a reality? Many from withinthe EU Commission certainly seem to think so.Recently the Polish Commissioner for

Regional Policy, Danuta Hübner, commented thaton how innovation and research should play akey role in helping Europe’s economies recoverfrom the economic slump. On an official visit tothe southeast of France, celebrating theachievements EU investment in local researchand business policies had made, she said: “Thecurrent economic context underlines even moreclearly the importance of innovation inrelaunching competitiveness and creating jobs.”

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Similarly, the January launch of the EuropeanYearof Creativity and Innovation 2009 byCommission President José Manuel Barrosoand Czech Prime Minister MirekTopolánek,highlights the emphasis the Commission andCzech Presidency is placing on some of themost important characteristics of the originalLisbon Agenda.There is little doubt that innovation, research

and the development and use of newtechnologies will play a leading role in anyeventual global economic recovery. But “bottling”innovation, creating successful research clusters,and implementing pan-European researchstrategies are all easier said than done. In thissense, the contraction of Europe’s economiesdoes not change the fundamental criticism ofthe Lisbon Agenda of being overly centralised.In fact, the recommendations made in the LisbonBarometer and Explaining the Lisbon Barometerof a greater focus on each individual MemberStates’ needs still ring true. Lisbon is stillneeded, but unless its goals and methodsare fundamentally changed, success will proveto be as elusive as it has been in the past.

DavidTorstensson is Senior Researcher of theStockholm Network

In the midst of a financial andeconomic crisis, which pundits declarethe world has not seen since theGreat Depression, the EU may bere-discovering its decade-oldcommitment to making Europe‘the most competitive and dynamicknowledge-based economy inthe world’.

When it was first launched, the LisbonAgenda was intended to be a defining momentfor the European Union (EU).At the annualspring meeting in Lisbon, Portugal, the EuropeanCouncil set out a new economic and socialvision for a 21st century Europe.A Europedigitised, connected and at the forefront ofglobal innovation and creativity. Nine years on,however, and reaching the Union’s goals hasproved to be more difficult than expected.Indeed, the EU itself tacitly admitted so in March2005 when the first incarnation of Lisbon –dubbed Lisbon I – was effectively scrapped infavour of the new, less grandiose, Lisbon II, theStrategy for Growth and Jobs.Last year the Stockholm Network produced

the Lisbon Barometer, a statistical evaluation ofwhether the EU and its Member States wereliving up to their Lisbon Agenda commitments.By using nineteen statistical categories – someused by the European Commission itself andsome picked to supplement the Commission’smeasures – covering both standard and lesstraditional areas of innovation and competition,this barometer monitored and ranked theprogress of nine EU countries towards meetingthe goals of the original Lisbon Agenda of 2000and the Lisbon Strategy for Growth and Jobs.Together with its sister publication, Explaining theLisbon Barometer, the Lisbon Barometer provideda number of important insights into what hasgone both right and wrong with the LisbonAgenda.While the Barometer’s overall resultswere perhaps no surprise – with Sweden andthe Netherlands coming out on top – its mostinteresting finding was the degree of variationbetween different countries, both in terms oftheir overall performance as well as withinindividual categories. In light of this finding, thepaper’s central recommendation was that theEuropean Commission should move away fromviewing Lisbon I and II as a pan-Europeanproject requiring EU-wide targets and goals.Instead, the diversity, different aspirations, andvarying requirements of each individual MemberState should be embraced.

1 Lisbon European Council, 23 and 24th March, 2000 Presidency Conclusions

The resulting environmental changes are havingserious effects on economies around the region.In this ongoing process there are no cleareconomic ‘winners’. The long shadow ofeconomic uncertainty casts its pall over thewhole range of northern non-state economicactors, including indigenous communities, thefossil fuel industry, and international shippers.Increasingly, communities around the Arctic are

finding that traditional knowledge is at odds withtheir shifting environment. Progressively laterfreeze-ups on the coasts of eastern Siberia, Alaskaand the Canadian Arctic have limited hunters’ability to travel safely across sea ice, the primarywinter transportation corridor for the region’scoastal populations. Among other impacts, thisconstrains their access to the marine mammalsthat constitute an important segment of localdiets. Later winters have also forced the Saamito find new routes for their reindeer herds,changing migration patterns and undoingmillennia of evolved social behaviour. By raisingthe costs of hunting and herding, unpredictableclimatic swings are forcing many indigenouspeoples to rely increasingly on wage labour andgovernment subsidies.The changing population and distribution of

prey species is also having dramatic effects.The gradual thinning and retreat of arctic seaice is directly affecting the region’s seven primarymarine mammals, including beluga and bowheadwhales, the narwhal, ringed and bearded seals,the walrus, and the polar bear. These animalsrely on sea ice for a variety of needs.On September 16 2007, sea ice covered 4.13

million km2of the Arctic Ocean, an area slightly

smaller than that covered by the EuropeanUnion and a 39% decrease from the twenty-yearaverage measured between 1979 and 2000.Four days earlier, global oil prices had hit anall-time high of $80 per barrel. In a deeplyironic juxtaposition, circumpolar climate changetherefore became equated with untapped fossilfuels, the very substances whose exploitationwas primarily responsible for triggering climatechange to begin with.

With an estimated 90 to 200 billion barrelsof oil and a third of the world’s undiscoverednatural gas, the fossil fuel potential of the Arcticis undeniable. Nevertheless, the likelihood of itsimmediate exploitation remains doubtful. Publiccommentators assume that success in onesector of the Arctic foreshadows similar successelsewhere. However, western Siberia and theBarents Sea are special cases in the polar world.Both are mild, warmed by the northern arm ofthe Gulf Stream that keeps sections of theNorwegian and Barents Sea relatively ice-free.Compared to conditions farther east, thesecorporate and state ventures face relatively fewenvironmental constraints. Operators in othermaritime and terrestrial areas of the Arctic facemore uncertain environmental futures.Offshore drillers are the most likely to benefit

from the long-term ecological effects of climatechange. By opening more sea-lanes to maritimetraffic for longer seasons, warming trends mayreduce the currently high costs of exploration,construction, maintenance, and transportation.Nevertheless, uncertainty remains. Increasinglycommon storm systems and severe coastalerosion may undo some of the cost savings thatmight accrue to businesses from a warmer sea.The future of terrestrial oil and gas

exploration is more unclear. These businessesare rooted in arctic permafrost. Theirinfrastructures are built on frozen ground. Overthe past thirty years, a 2°C warming trend in thepermafrost has led to a halving of the number ofdays during which the Alaskan Department of

Natural Resources permits heavy vehicles on thetundra. This equates to a 50% shorter seasonduring which heavy exploration and drillingequipment can be used. Old buildings and portfacilities will have to be retrofitted to cope withchanging conditions. Thus, while a warmer Arcticmay reduce some environmental constraints, itsknock-on effects for infrastructure and travel willmake the coming decades an increasinglychallenging time for its terrestrial oil and gasindustries.Though the summer sea ice in 2008 did not

reach the minimum extent seen a year earlier,the season was marked by two importantevents. It saw the first recorded instance inwhich both the Asiatic and American transpolarsea-lanes, the Northern Sea Route (NSR) andNorthwest Passage (NWP) respectively, weresimultaneously ice-free. It also saw the lowest-ever recorded overall volume of arctic sea ice,with thin first-year floes making up 73% of theMarch ice pack.These events foreshadowed thebeginning of a new era of activity for transpolarshipping, which could cut as much as 40% offshipping distances between East Asia and eitherEurope or the east coast of North America viaSuez and Panama.States and companies will need to overcome

several obstacles in order to realise this potentialboon. First, governments will need to provideadequate support to ships passing through theirwaters. This will require considerable spendingbut to date, neither Canada nor Russia, thestates most immediately concerned with theNSR and NWP, have made the necessarycommitments.Companies will also need to make

considerable investments in order to takeadvantage of transpolar routes. Vessels need tobe reinforced to withstand contact with first-year ice. Companies will also need to hire ortrain ice-ready crews with the special skillsnecessary in arctic waters, whose wages willincrease alongside demand for their services.Finally, given the inherent risks of arctic travel,they will face significantly higher insurancepremiums.A few general conclusions are immediatelyapparent. First, indigenous economies are underthreat from unpredictable weather patterns,polar melting, and changing animal populations.Sustainable indigenous economies will only

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Spotlight on the Energy andthe Environment Programme:

CLIMATE CHANGEAND ARCTIC ECONOMIESPopulated by only four million people, the Arctic is on the front line ofanthropogenic climate change. Over the past fifty years, it has witnessedsome of the largest temperature rises on the planet, as much as 3 to 4°Cin Alaska and Canada’s Yukon and Northwest territories.

2 BRIC: Acronym that refers to the fast growing developing economies of Brazil, Russia, India, and China.3 http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/10&format=HTML&aged=0&language=EN&guiLanguage=en

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emerge once the economic benefits accruingto companies and states from industry andresource exploitation in the Arctic are sharedwith the local populations. Second, climatechange will adversely affect the costs of doingbusiness on the Arctic mainland. Finally, theretreat of sea ice, while opening up newsources of fossil fuels and previously ice-boundmaritime trade routes, will not translate intoimmediate economic benefits for businesses orcommunities. Both companies andgovernments will need to make significantinfrastructure investments before realizing theirpotential economic windfalls, though currentfinancial circumstances probably reduce thelikelihood of this happening. Yet, only thenmight the Arctic economy live up to some ofthe expectations that have been heaped uponit.

OVER MATTER

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New Economics School – Georgia(NES-G) is a non-governmental andnot-for-profit organisation based inTbilisi, Georgia.The organising groupof NES-G was established inAugust 2001 in the USA by GiaJandieri (Vice-President) and PaataSheshelidze (President).Actualoperations NES-G started in 2002and passed official registration underGeorgian law on the 2nd of April2003 in Tbilisi, Georgia.

New Economics School – Georgia completedits first five year plan between 2002-2007.Theaim of this plan was to create a recognisablebrand, a network of like-minded people, andto influence and encourage economic reformsin Georgia. Along the way, NES-G conducted160 seminars (more than 7,700 participantsin total, among them 900 young people withcertificate programmes), conferences and publiclectures.We have also published and edited keytexts including books by F. Bastiat, C. Menger, K.Schoolland,T. Machan, S. Hence and J. Gwartneyas well as 5 volumes of selected articles underthe title Library of Liberty.

The NES-G has been honoured three timesby the Atlas Foundation, most recently byreceiving the Dorian and Antony Fisher Grant in2008, and has also previously received grantsfrom FNF, CATO and others. Further, we haveparticipated in brainstorming consultancy workwith high level State officials including theGeorgian President, Prime Minister, Ministersof State and the Chairwoman of the Parliament.More than 20 associate experts of NES-G wereinvited by the Government and have heavilyinfluenced some revolutionary legislation thathas moved the country toward free marketreforms and deregulation. Ruth Richardson,

Mart Laar, Andrei Illarionov, Jan Oravec, MarcMiles, Robert Lawson, Richard Ebeling,TomPalmer and many others the NES-G invited toour country have helped to move the countryin the direction of free market reforms andpopularised ideas of economic freedom.

The new website of NES-G was launchedin July 2006; the site is available in English,Georgian and Russian. Media coverage receivedby NES-G experts increased exponentially in2007 and continues in 2008 – we are currentlyaveraging 2-3 interviews for different TV andRadio stations per week.

Between October 9 and 12 this year, the NewEconomic School-Georgia is hosting the FifthEuropean Resource Bank Meeting (ERBM), thelargest annual congress of free market think

tanks in Europe.This meeting aims to provideparticipants with unparalleled networkingopportunities, as well as with the chanceto learn and share think tank methods andtechniques that have been proven topromote liberty.

In our next five year plan (2008-2013), ourgoal is to transform New Economics School –Georgia into an international resource and aformidable research and training centre for thedissemination of economic knowledge.In 2008 the NES-G is kicking off this initiativeby collaborating with CIPE and USAID toorganise Training for Journalists, a year-longproject we hope will be a major success.We have much to celebrate at the NES-G,and much to do.We look to the futurewith anticipation and hope that we can keepgrowing, evolving and influencing opinionboth in Georgia, and beyond.

Tamara Khvtisiashvili is Secretary Generaland Office Executive at the New EconomicSchool – Georgia

Photo:Shutterstock

PROFILE:TimbroStockholm, Sweden

http://www.timbro.se/

“Timbro is neededmore than ever.Themission of promotinga classically liberal,free-market agendanever ends”

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The Jože Pucnik Institute (IJP) was founded in2006 as a think-tank of scientists, policymakers,experts and academics from various fields withthe goal of enhancing political culture in Slovenia.With its activities the IJP wishes to encourageand support free exchange of opinions on topicalquestions in society which are important fordevelopment of democratic thought.

In accordance with the political thinking andwork of Dr Jože Pucnik, the IJP strives for:

• Implementation of high standards of politicalculture in Slovenia,• Democratic and open society,• A society of Slovenian and European values,• Tolerance and understanding in public life,• Enhancement of plural cultural and scientificcreativity,• Cooperation with the like-minded political,cultural and scientific groups and individuals inEurope and around the world joined togetherby the principles of the society of democracy,openness and solidarity.

In order to reach these goals the IJP carries outthe following activities:

• Organization of public debates and otherforms of exchange of opinion,

• Providing expertise on topical political andsocial issues,

• Education and training of policymakers andpublic servants,

• Supporting scientific and cultural creativity,• Encouraging political dialogue of variousopinions on relevant themes at public events,in various publications and in media,International connections and exchanges.

The Jože Pucnik Institute is mainly interested indemocracy promotion, civil society building, EUAffairs and economic issues as well as moregeneral topics in the fields of culture and society.

In two and a half years of existence the JožePucnik Institute has organised a number ofconferences, roundtables, discussions andpublished several books.The most importantevents have been:

•The international conference “The Role ofNational Parliaments in EU Decision-MakingProcesses”, held in January 2007.Thisconference was attended by more than120 participants including the Presidents ofthe Slovenian, German and PortugueseParliaments and the Vice-President of FrenchNational Assembly; and•The “Days of Jože Pucnik”, considered themain event of the Institute.This two-dayconference is held annually and focuses ona carefully selected topic that concernsthe Slovenian society. All main events areusually accompanied with the publicationof the papers.

The Jože Pucnik Institute is also a memberof different international networks, amongothers the Stockholm Network with whom itco-organised the conference “The Future ofHealthcare Reform in Slovenia” in November2008, as part of the Stockholm Networkproject “CEE Ahead”.

In 2009 the Jože Pucnik Institute plans toorganise two big events: a two-day conferencededicated to the present economic crisis andits impact on Slovenian society in March, anda two-day international conference marking thetwentieth anniversary of democratic changesin Eastern Europe and Slovenia.

The objective for the near future is to spreadour activities into the neighbouring regions oftheWestern Balkans and to play a more activerole on the internet.

Mateja Jancar is Programme Manager of theJože Pucnik Institute.

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“With its activities the IJP wishes to encourageand support free exchange of opinions ontopical questions in society which are importantfor development of democratic thought”

http://www.ijpucnik.si/

PROFILE:Jože Pucnk InstituteLjubljana, Slovenia

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EYE ON EUROPE

InnoVal-HC was founded in 2005 by Germanprofessors Oliver Schwarz, a specialist ineconometrics, and Michael Schlander, a physicianand economist. The Institute is an independentnot-for-profit scientific organisation dedicated toresearch into the foundations of economicevaluation of health care technologies and theirapplication, with particular emphasis on process(e.g. health care delivery, access, utilization, cost,and financing) and product (e.g. diagnostics,pharmaceuticals, medical devices, and theirappropriate use) innovations.

The raison-d’être of InnoVal-HC is tocontribute to the understanding of the trade-offs inevitably associated with diagnostic andtherapeutic decisions, including theiropportunity cost. This implies analyses andresearch into the:

– Methods and ethical foundations ofhealth economic evaluations

– Mechanisms of delivery of and financinghealth care and their impact on outcomes,quality, and efficiency

– Valuation of innovative technologies,procedures, and products

– Acceptability analysis of new technologiesbased on cost-benefit evaluation, incrementalcost- effectiveness ratios, and budgetaryimpact models

– Utilization of specific health care programs,including their real-world effectiveness andresource impact

– Decision analytic modelling to supportefficient health care provision and research& development

A fundamental principle of all InnoVal-HCprojects is adherence to rigorousmethodological standards and the strictseparation of evidence (factual knowledge) andinterpretation (opinion).

Being blessed with the privilege of academicindependence, InnoVal-HC and its founderstake pride in the strict neutrality of theiranalyses. As a matter of principle, in order tomaintain that independence, they acceptfinancial support of projects exclusively under apolicy of unrestricted educational grants.A self-regulatory Code of Conductdemonstrates the commitment of Innoval-HCto the highest attainable academic standards.The InnoVal-HC Code of Conduct covers indetail the following subjects:

1 Area of Application2 Mission and modus operandi of the Institute3 Professional Standards4 Good Scientific Practice5 Conflicts of Interest6 Implementation7 Allegations of Misconduct8 Effectiveness / Severability Clause9 References

In terms of activities, in the past couple of yearsInnoVal-HC has inaugurated and organised theHeidelberg Health Economics Summer School,a high–level program offered in cooperationwith the University of Heidelberg (Departmentfor Public Health, Social and PreventiveMedicine of the Mannheim Medical Faculty).

The Summer School is directed to professionalsof the health system.

In terms of publications, InnoVal-HC’s chairman,Professor Michael Schlander, has published arange of papers in peer-reviewed periodicalslike Current Medical Research and Opinion, theJournal of Medical Economics and Journal ofMedical Ethics – as well as specialty journalssuch as the American Journal of Psychiatry,Health Services Research, European Child &Adolescent Psychiatry, Journal of ClinicalAnaesthesia, the Drug Information Journal,The Pharmaceutical Executive, and Child andAdolescent Psychiatry and Mental Health,among others..

A recent study examined Britain’s highlyacclaimed approach to cost-effectivenessanalysis (CEA), and its international potential.The analysis, published as ‘Health TechnologyAssessment by the National Institute for Healthand Clinical Excellence (NICE)’ with Springer inNewYork, NY, revealed an astonishing numberof technical problems associated with a recentNICE technology assessment, which had beenconducted by a group of researchers from therenowned University of York, England. Beyondcasting serious doubt on the real-life robustnessof the technocratic approach adopted by NICE,the study proposed important lessons forinternational policy makers looking at NICE asa potential role model.

Forthcoming papers by InnoVal-HC include anentry in the Encyclopaedia of Medical Decision-Making and papers in Current Medical Researchand Opinion and the German Journal for Evidenceand Quality in Health Care, all currently in press.

Current projects span pharmaceutical marketregulation, approaches for “comparativeeffectiveness” evaluation, and the economicevaluation of particular medical technologies.Further health care utilization studies areunderway, drawing on the ‘Nordbaden database’project established by InnoVal-HC, comprisingthe complete outpatient care data of more than2 million patients covered by German statutoryHealth Insurance (SHI).

Professor Michael Schlander is Chairman ofInnoVal-HC

PROFILE:Institute for Innovationand Valuation in HealthCare (InnoVal-HC)Eschborn, Germany

http://www.innoval-hc.com/

“The raison-d’être of InnoVal-HC isto contribute to the understandingof the trade-offs inevitablyassociated with diagnostic andtherapeutic decisions, includingtheir opportunity cost”

Photo:BigStockPhoto

9WINTER 2009

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The Murray Rothbard Institute is anindependent centre of research and education inphilosophy of law and economic theory. Clearfundamental insights in those areas are crucialbecause the decisions based on them have aprofound influence on prosperity and peace formankind.Working mainly within the traditions ofthe Austrian school of economics and naturallaw theory, we want to contribute to both theacademic and public debate.

Our two main programs are publications andseminars.We translate and publish both newand existing works - advanced academic booksas well as short accessible books for theintelligent layman. Our seminars are chieflyaimed at university students, to provide themwith a firm theoretical understanding ineconomics or philosophy of law.

The success by which a doctor can cure hispatients does not rest solely on his goodintentions. Just as critical are his medicalknowledge and the available medicines - we onlyhave to think about the popular but fallacioushistorical practice of blood-letting. In the sameway, the means used by politicians, reformersand activists seeking to better society are oftendetrimental to their cause.That is why webelieve in a dispassionate presentation ofdiscussion about what we consider to be thekey theoretical insights to successfully ‘diagnose’and ‘cure’ the crucial challenges facing society.

We focus on economic theory, and philosophyof law and institutions, with special attentionto the interdisciplinary possibilities of thosetwo sciences.Within these broad areas, weplace special emphasis on the theory ofbusiness cycles, monetary institutions, and thenormative foundations of legal and politicalrights, among others.

The Rothbard Institute was founded by the endof 2007 and started operations in 2008. So farwe have published two books, one academicwork by Prof Frank van Dun on philosophy oflaw, and a translation of a popular book byMurray Rothbard on monetary theory andhistory.We also organised two series of series ofseminars, one on philosophy of law and one oneconomic theory and the current economiccrisis.The Institute received a Project Grant fromthe Atlas Economic Research Foundation inNovember 2008.

In 2009 we will continue our series of seminarson philosophy of law and economic theory inBelgium’s two main university centers, Ghentand Leuven, organise an intensive four-day longsummer seminar for students, and publishseveral books.We will pay special attention toexplaining the root causes of the economic crisisthat we are currently facing.

Michaël Bauwens is co-founder of the MurrayRothbard Institute

PROFILE:Murray RothbardInstituteAntwerp, Belgium

http://www.rothbard.be/

“We believe in a dispassionate presentation ofdiscussion about what we consider to be the keytheoretical insights to successfully ‘diagnose’ and ‘cure’the crucial challenges facing society”

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The past few months have hardlybeen the most propitious of timesfor markets, nor indeed for states.As governments around the worldseem to be revisiting the ideas ofKeynes, digging deeper into theirempty pockets to implement vastprogrammes of public spending tokickstart their economies, the outlookfor growth and prosperity in 2009 israther bleak.

In thisWinter issue of Eye on Europe, we look ata range of topics which pertain to gettingEurope’s economy back on track. Our leadingarticles, along with our update on theStockholm Network’s new Lisbon Barometer,touch on two important and highly topicalissues - financial regulation and innovation.

It is evident that the quality of both are centralto making sure that Europe remains aworthwhile place to invest in today’s muchfrostier economic climate. And it is nocoincidence that both these themes are theheart of the agenda for the current CzechPresidency of the European Union, whoseslogan is ‘Europe without Barriers’.Twenty yearsafter the fall of the Iron Curtain, it is worthreminding ourselves of the importance ourpolitical and economic freedoms, even in theface of today’s financial markets.

We also review historian Niall Ferguson’s newbook The Ascent of Money, which provides atimely reminder of the history of money andsome of the pitfalls of handling it. Essentialreading for all politicians and business people forthese cold winter evenings, perhaps?

Although times are tough across all industries –including for think tanks – we are pleased toannounce that we have recently added severalnew member think tanks to our network,including the Murray Rothbard Institute inBelgium and the Institute for Innovation &Valuation in Health Care in Germany, both ofwhom are profiled here.We welcome ournewest member think tanks into this policycommunity and look forward to the pleasureof introducing them to you in print, as well asin person.

Helen Disney is Founder and Chief Executive ofthe Stockholm Network

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EYE ON EUROPE

DIRECTOR’S REPORT

11WINTER 2009

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EVENTSIP – PARIS EVENT

Workshop on “Evidence-Based Policy in theField of Intellectual Property Rights”, held inParis on 22 September 2008.The speakerswere Mario Cervantes, OECD; Denis Dambois,European Commission; DrYoav Shechter, MSDIsrael; and Dr Meir Pugatch and Helen Disneyof the Stockholm Network.

SN – THE ECONOMIST EVENT.

The Economist´s cartoonist Kevin `KAL`Kallaugher and Henry Naylor (creator of TV`s`Headcases` and `Spitting Image` head writer)discussed cartooning, campaigning andchicanery and explore how art can be usedto interest, excite and intrigue any audience.

The discussion was chaired by KrishnanGuru-Murthy, Channel 4 News.

POLICY ISSUESThe Network is a forum for sharing, exchangingand developing pan-European research and bestpractice. Interested in ideas which stimulateeconomic growth and help people to helpthemselves, we promote and raise awareness ofpolicies which create the social and economicconditions for a free society.These include:

Reforming European welfare states andcreating a more flexible labour market.Updating European pension systems toempower individuals.Ensuring more consumer-driven healthcare,through reform of European health systemsand markets.Encouraging an informed debate on intellectualproperty rights as an incentiveto innovate and develop new knowledge inthe future, whilst ensuring wide public accessto such products in the present.Reforming European energy markets to ensurethe most beneficial balance between economicgrowth and environmental quality.Emphasising the benefits of globalisation, tradeand competition and creating an understandingof free market ideas and institutions

The Stockholm Network is a leadingpan-European think tank andmarket-oriented network. It is aone-stop shop for organizationsseeking to work with Europe’sbrightest policymakers and thinkers.Today, the Stockholm Networkbrings together over 120 market-oriented think tanks from acrossEurope, giving us the capacity todeliver local reform messages andlocally-tailored global messagesacross the EU and beyond.Combined, the think tanks in our networkpublish thousands of op-eds in the high qualityEuropean press, produce many hundreds ofpublications, and hold a wide range ofconferences, seminars and meetings. As such,the Stockholm Network and its memberorganisations influence many millions ofEuropeans every year.

WHAT DO WE DOWe conduct pan-European research on,and create a wider audience for, market-oriented policy ideas in Europe. Our websitecontains a comprehensive directory ofEuropean free market think tanks andthinkers.We advertise forthcoming events(our own and those of partner organisations)and facilitate publication exchange andtranslation between think tanks. We alsopost regular news flashes and updates onEuropean think tanks and their activities.

Would you like to join theStockholm Network?Please contact us on +44 20 7354 8888or email info@stockholm-network.org

MEET THE TEAMChief Executive and Founder Helen Disney.Director of Research Dr Meir Pugatch.Chief Operating Officer Dr Cristina Palomares.Fellows Paul Domjan, Jacob Arfwedson.ResearchTeam DavidTorstensson;Senior Researcher, Paul Healy; Policy Analyst,Rachel Chu; Research Officer.Accounts Nasrin Hassam

ABOUT THENETWORK

CEE AHEAD – SLOVENIA EVENT

The Stockholm Network and the Jože Pu nikInstitute joined forces to organise a workshopon “The Future of Healthcare Reform inSlovenia”. Helen Disney and Dr Meir Pugatch ofthe Stockholm Network were joined by thePresident of the Institute and Mijael Brejc MEP,and Natasa Sustar, Director of the Institute.

Stockholm NetworkWeekly Bulletin*This weekly e-update keeps subscribersup to date on all Stockholm Networkmember think tank activities includingevents, announcements and publications.

NewslettersReceive information about current issuesas well as expert analysis and insight intodebates in our three programme areas:

Climate of OpinionEach issue focuses on a different aspectof timely energy and environment policies.

Gesundheit!Highlights developments in contemporaryEuropean health and welfare policy.

Know IPDiscusses notable developments in the fieldof intellectual property taking place both inEurope and outside it.

*If you would like to subscribe to any ofthese publications, including the Eye onEurope, please email:info@stockholm-network.org

UPCOMINGADDITIONSPoly BriefsThe policy briefing service will offer regular,concise summaries and analyses of criticaldevelopments in our three programme areas.

EYE ON EUROPE

STOCKHOLM NETWORK35 Britannia Row, London N1 8QHUnited Kingdom

Tel: (44) 207-354-8888Fax: (44) 207-359-8888E-mail: info@stockholm-network.orgWebsite: www.stockholm-network.org

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From the first issue of The Stateof Union - launched in 2005 - tothis follow-up edition, we havewitnessed quite a number ofpolitical and economic changes inthe EU.This publication highlightsthe market oriented economicreforms put forward by the 27EU members up to early 2008.Yet, in the past few months, theglobal financial crisis hasthreatened the achievements ofmany EU countries, which havesuccessfully managed to embracethese reforms during the pastfew years.This publication willbe available online.For further information onpublication date please checkwww.fundacionfaes.es

RECENTPUBLICATIONS

EL ESTADO DE LA UNIÓNEl progreso de las reformas de mercado en la UE

FORTHCOMING PUBLICATIONThe State of the Union – Spanish versionThe Stockholm Network has joined forces with FAESFoundation, one of its member think tanks, to translate apublication that was first launched in April 2008, The Stateof the Union or El Estado de la Union, in its Spanish version.

If it Ain’t Broke, Don’t Fix It

Courting Confusion

The Health Quality Agenda

Health Care Reform in CEE

WEB UPDATE: CEE AHEADCEE Ahead seeks to advance health reform andmodernisation in Central and Eastern Europe throughenabling a broad and informed debate about better waysto deliver and finance sustainable healthcare in Europe.The CEE Ahead websiteprovides country snapshotswhich detail the progress ofhealth reforms in individualcountries since transition,along with regular newsupdates on reformdevelopments. In addition,the website containsinformation on CEE Aheadpublications and events,as well as links to otherrelated websites, publicationsand initiatives.

To access the website, please visit:http://www.stockholm-network.org/Conferences-and-Programmes/Health-and-Welfare/CEE-Ahead