Homage to Nelson Mandela

THANK YOU, MADIBA

The costs of secession movements

Scholars and commentators that have been thinking about the potential secession of Quebec and Scotland provide interesting insights on the sovereignty debate in Catalonia. The constitutional, cultural, economic and demographic realities are different, but Quebec and Scotland are the only examples of parts of industrialized states that have tried to secede peacefully through referenda. Robert Young introduces the important concept of the transaction costs in the transition to secession, which, as well as uncertainty costs, depend on the politics and the degree of conflict associated to secession should this occur. He claims that transition costs in general can be very significant, and may delay for several decades the potential net benefits of independence. Kim Somers and François Vaillancourt present some interesting quantitative work on the now fifty-five year old debate about sovereignty in Quebec: despite the small number of time observations and endogeneity problems, they show serious costs of the hypothetical event of secession in terms of GDP and migration, but they do not find significant overall economic costs of the movement towards independence. This may provide a clue of the proposals for “light” or “low cost” independence that seem to be made by secessionists in Scotland now that the referendum approaches: “independence” seems to be compatible with keeping the pound, the queen and the BBC at least. What secessionists find useful is the “movement”, the “process” towards independence: that is not very costly economically and it provides huge political dividends potentially for many years. But they need the process to last, not to finish, that would be too costly (politically for them, and economically in general).

Scientific rigour and political activism

A friend of mine who has spend time doing research in Canada, in Montreal (Quebec) to be precise, told me an interesting anecdote. She attended a seminar of a researcher whose conclusions reinforced an argument of the supporters of Quebec’s independence. When my friend had to opportunity to talk to this researcher in private and raised the issue of his support to independence, the researcher said that he was surprised that my friend assumed that he was pro-independence, since this was a private issue that he completely separated from his work as a researcher. I bet that this anecdote would not have happened in Spain or Catalonia, where it is much easier to infer the political position from the statements made in research formats. There is nothing wrong in being a scientist with political positions. That is what Einstein used to do. But the theory of relativity had little to do with world peace or social justice, the ideas advocated by Einstein. It is much more difficult to separate the two spheres when you do research in social sciences, where the choice of topics and the interpretation of results is unavoidably impregnated by one’s biases, as was openly and unashamedly done by the neo-conservative members of the Mont Pelerin Society. Scientists should be modest and open-minded, and be willing to update their prior beliefs as they receive contradicting evidence. The bad thing is when someone tries to disguise his or her prejudices into science. Some of the best economists today are openly partisan (they are openly left-wing), like Stiglitz, Krugman, Bowles, Aghion, Piketty or many others: in this case their progressive values have inspired their big questions, but their answers are nuanced (at least in my biased view) enough to see that they know how to update their beliefs. I prefer these intellectuals, rather than those whose bias is to ride the wave of the moment or to look somewhere else in the face of injustice or stupidity.

Low cost Independence

The Scottish nationalists have announced the details of their project for an independent Scotland, which includes keeping the Queen of England and the pound, and membership of the European Union, although officials from Brussels have repeatedly announced that once independent, Scotland would start its new life out of the EU and would have to apply for membership like any other external country. Two things seem to me quite extraordinary from this announcement. First, that it has taken several years for the Scottish nationalists from their commitment to independence to unveiling the details of what they exactly mean by independence. Second, what they mean by independence does not seem very independent, which seems fine to me, because I do not exactly understand the meaning of independence (or sovereignty) in the European Union and in a globalized and interconnected world. There are some differences between the Scottish nationalists’ campaign for independence and the Catalan nationalists’ campaign for independence. For example, Catalonia is relatively richer than Scotland compared to Spain or the United Kingdom respectively. Or in Catalonia the identity is based more on a native language that is spoken by a larger fraction (although not as the first language of a majority) of the population, although almost everybody speaks two languages, because since they both belong to the same language family, it is easy to speak both. One similarity between both campaigns, though, is that both reveal a preference for a sort of low cost independence. Catalan nationalists have given even fewer details of what would “independence” look like, and are also thinking hard on how to keep EU membership in any event, but when one of them threatened with a one-week general strike as part of the campaign for a referendum, the others immediately said that not even a one-day strike was on the agenda.

Resisting reforms that harm no-one

I have attended some policy debates recently on the duality of the Spanish labour market (the fact that we have a record level of temporary contracts). A few years ago, a group of economists proposed a very simple reform: to replace all contract options by basically one single fixed contract that increases the firing costs over time, leaving temporary contracts for season contracts in product markets where work is really seasonal. Since current workers with fixed contracts would keep their current contracts it is hard to understand why trade unions have so fiercely resisted such reform. Samuel Bowles, in his chapter on bargaining in his “Microeconomics” book (page 201), argues that “getting to the bargaining frontier may require new institutions or precedents, that with some probability will later be deployed to the disadvantage of one of the bargainers”. If this can be applied to labour reform in Spain, perhaps organized workers do not fear the new contract per se but fear that it will open the door somehow to them losing bargaining power. Assuring them that it will not be so is perhaps the key to a successful reform. This requires expanding the political economy traditional framework (social groups defending their interests about the particular policy at stake) to take a more comprehensive view. Acemoglu and Robinson have a recent paper on policy advise where they also claim that advisers should take into account the effect of reforms on the political power of affected groups. Perhaps in these cases it would be better to propose the reform together with a broader package that makes it more acceptable to workers, and that includes tax issues, training possibilities or participation in firm management.

"Queries": think European, read European

I participated today in an event organized by the Foundation for European Progressive Studies (FEPS) in Barcelona. I chaired an interesting debate on industrial policy, where some interesting ideas were exchanged on the relative importance of vertical versus horizontal policies, or the need to pay attention to the ideas of Dani Rodrik on the institutional design of industrial policies. The organizers took advantage of the event to present the magazine Queries, which is the first progressive European wide magazine. The event was attended by an interesting mixture of practitioners and academics, among them the economist from Columbia University Stephany Griffith-Jones. I believe that FEPS are doing interesting work in trying to get the practice of European progressive parties closer to the ideas of top left-wing academics. This kind of work is specially needed in times of great political uncertainty and volatility, when the dangers of populism and technocracy must be fought with solid arguments and well-thought strategies. The difficulties of progressive strategies at the national level must be overcome not with desperate attempts to copy the recipes of the populist, but with the update at the UE level of the principles that have worked well in the countries that have been under social-democratic governments for more years.

Are students and politicians always worse?

Teachers routinely claim that students are each year worse than the previous one. It seems that Aristotle was among the first recorded scholars to make this claim, which reveals that obviously it cannot be true. Of course students keep changing because society changes. A similar claim is made about politicians. The times of Winston Churchill and Franklin D. Roosevelt are gone, and since few people are alive to remember them, we assume that they were much better than our current politicians. Obviously this claim cannot be true either. A linear trend towards always increasing mediocrity in the quality of our politicians cannot be true. Again, politicians change with society, and the quality of individual politicians is to a large extent random. Of course, Obama is not worse than Bush, although this was worse than Clinton. But that is my opinion, and it is very difficult to establish the criteria by which they should be judged. Mandela and Lula da Silva did not possess great academic credentials, but were arguably among the best politicians ever. There are some objective aspects of reality, though, that can be used to think a little bit about this issue. For example, there are today more democracies than 30 years ago, and there are less dictatorships. Unless we argue that democratic leaders are systematically worse than dictators, it is impossible that our political leaders are linearly worse as time goes by.