Friday, September 19, 2014

Scotland: the silent majority was silent no more

The winners of the Scottish referendum are a federal Britain and a federal Europe, which have now become a credible proposition. Gordon Brown made a speech the day before the referendum that seems to have been decisive in the clear victory of the NO vote. It is a great federalist speech (which starts with “The silent majority is silent no more…”) without using explicitly the F word. But others have been much more explicit.
Chris Bertram said: “So I hope there’s a “no”; “yes” could turn things very nasty, both in Scotland and elsewhere in the UK. But DevoMax brings its own problems. If Scotland gets so much devolved power, then why should similar local control not be vested in other parts of the UK? In short, what we need is a federal structure with Scotland, Wales and a selection of English regions being the constituent Länder. Eine Bundesrepublik Britannien, in fact. If Ed Miliband and Labour are smart, then they will make the call for a UK-wide constitutional convention part of their campaign for 2015.”
And Will Hutton said: “The only offer that can now persuade Scotland not to secede is to trump that half-cock quasi-federalism with a proper version. Westminster's party leaders must offer to create a federal Britain and irrevocably commit to a constitutional convention to discuss its implementation if Scotland votes no. This is not "devo max", or further incremental powers to control social security or taxation. This has to be the real deal – a wholesale recasting of the British state so that Scotland, Wales, Northern Ireland and all Britain's great cities and towns have the autonomy they need to create the societies and culture they want but within the protective umbrella of Great Britain. This really would be the best of both worlds, and not just for Scotland.”

Thursday, September 11, 2014

More on Scotland and Catalonia

In the last few days, as the Scottish referendum approaches, we have seen some intellectual heavy weights either openly arguing against the independence project of Alex Salmond, or proposing something much better: a federal Britain. Paul Krugman has asked the Scots to "be afraid, very afraid" and to think twice before swallowing the idea that currency union without political union is possible. Will Hutton, one of the most important intellectuals of the British left, has explicitly advocated for a "federal Britain," something that I openly support. Meanwhile, the best predictors (prediction markets, where investors put at stake their own money, so that their average bets amount to a measure of the "wisdom of the crowds") of the referendum's result say that the NO vote is still much more likely to win. But, of course, these are only predictions.
Meanwhile, as I argue today in an on-line debate in Europp, Catalonia should find a better way than a secession referendum to decide about its future constitutional status, in a world of overlapping and shared sovereignties where the nation-state is becoming obsolete. If and only if, over an extended period of time, a very large and stable majority shows an unambiguous support for a detailed “independent” constitutional project within a clear international framework, then some democratic procedure accepted by all relevant actors should be established to peacefully negotiate and finally take a final decision about it. These conditions clearly do not apply today.
Most internationally recognised legal scholars and political scientists believe that the right to secede should be restricted to extreme cases. Accordingly, secession referendums are the exception in developed democratic countries, especially in the context of the European Union and the Eurozone, which are in a complex process of increasing political integration and redistribution of sovereignty.
There are three commitment problems, well-known to social scientists, associated to the unrestricted use of a referendum of independence in federal systems:
1) Federal governments should not be too powerful, and focus on the creation of the legal and regulatory frameworks for markets to operate efficiently (including a strong currency and clear borders), and commit both not to expropriate prívate investments and not to interfere with federal units, according to the theory of market preserving federalism due to Weingast and his co-authors.
2) Potential majorities or elites in federal units should commit not to cheat opportunistically on the specific investments made by large minorities assuming the permanence of some federal institutions: educational degrees, retirement benefits for federal civil servants, language skills, factor mobility, currency…
3) The governments of federal units should commit not to use their resources to promote the partition of the federal state. Otherwise potentially federal states will be reluctant in the future to decentralise in contexts where it would be desirable to do so. When federal units are relatively rich, there should be a mutual commitment for the units to fairly, boundedly and transparently contribute to the common resources and for the federation to preserve self-government and the participation of the federal units in shared decision-making.
Unless these commitments are respected, societies may fail to build the stable federal systems that are necessary in our increasingly integrated economies. To preserve commitments, democratic societies build institutions that constrain the unrestricted use of majority rule. That is why we have constitutions, international treaties and courts of justice. To the extent that, as I believe, it is desirable that both Spain and the EU become better federations, the use of a unilateral independence referendum as a decision mechanism would jeopardise this objective. It would also trigger internal and external cascade effects that would make it impossible to focus the energies on a more integrated and democratic Europe.
Spanish and Catalan leaders should instead build on our common values to submit to the final decision of the electorate an agreement on a shared institutional architecture that can be legal and stable in the European context, and give satisfaction to historical grievances.

Sunday, September 7, 2014

The irrelevance of the French minister of the Economy

The replacement of a French protectionist by a 36 years old philosopher as French minister of the economy illustrates the irrelevance of this position. The relevant instruments of macro-economic policy in the euro zone are today in the hands of the European Commission and the euro-group. That is why Manuel Valls, the French prime minister, could afford to appoint a demagogue protectionist with ideas that are very different from his, for reasons that had to do with internal party politics. And that is why now that he needed to give the opposite signal, he appointed a moderate philosopher of a very young age, too young in fact to seriously think that he will take any relevant decisions. France influences economic policy at European level meetings, so hopefully Hollande and Valls will focus on appointing good advisers for their role in these meetings. I have always seen France as a successful country, and therefore I do not understand well why it is supposed to be always in crisis. It is a society with a very high level of state intervention in the economy, that has one of the highest standards of living in the world. Surely it has to reform many things, but I don't think they seriously consider doing something very different from what they have been doing pretty well since the times of François Mitterrand: work for a more integrated Europe, consolidate their alliance with Germany, and accept an open economy with a high degree of public spending. Their risk is Madame Le Pen, not the moderate socialists. Their goal should be the same as everybody else's in Europe: promote a more democratic, and less technocratic, European federalism.

Tuesday, September 2, 2014

Acemoglu and Robinson on Marx and Piketty

Acemoglu and Robinson, the authors of "Why Nations Fail" have written a critical review of the book by Thomas Piketty "Capital in the XXIst Century". They argue that what they call the "general law" of Piketty that the rate of return of capital (r)  is higher than the growth rate (g), and that this persisting difference will drive increasing inequalities is as misguided as the "general laws" of Karl Marx, such as the decreasing profit rate and the fall of capitalism. Acemoglu and Robinson claim that the common mistake of Piketty and Marx is that they neglect institutions and politics. This is surprising to me, unless one takes a very narrow view of institutions and politics. Piketty and Marx are both very "political" authors, and their theories can be interpreted as institutional theories of capitalism, in the sense that they analyse the basic structures of society. Marx predicted that the forces of production and the relations of production (the infrastructure) determined the superstructure (politics and culture, for example), but one can interpret many institutions (such as property rights) as infrastructure. Acemoglu and Robinson claim that political institutions are first (their "general law"?) and that they determine economic institutions and outcomes. This general law is subject to discussion to say the least, as illustrated in the work of Robert Allen, one of the economic historians mentioned by Acemoglu and Robinson. Of course time has proven many of the Marxian predictions wrong, and time may prove many or some of Piketty's predictions wrong. I interpret Piketty's work as basically reporting in a very detailed way that r has been higher than g in many countries in the recent decades, and that, unless we take some very serious political and institutional decisions, this will expand and persist and have a very damaging effect for democracy. Acemoglu and Robinson provide analytical narratives of Sweden and Southafrica, and some simple econometric work, to claim that politics and institutions are more important than r-g. I do not think that Piketty claims that r-g is the only thing that matters, and that is precisely why he says that strong redistributive policies are needed. Acemoglu and Robinson accept that huge inequalities can have a negative effect on democracy, but it seems that their proposal to correct for this is some vague intervention on the political channel, but not strong taxation intervention on inequalities per se. I sympathize with this comment by Milanovic on the review by Acemoglu and Robinson (AR). But I look forward to the response by Piketty himself, who was a bit dismissive of the work by Acemoglu and Robinson in his book, arguing that while AR refer to the institutions that facilitated the industrial revolution, he makes proposals about the institutions (progressive wealth taxation and federalism) that should rein increasing inequalities in the era of globalization today.

Friday, August 29, 2014

Externalities of a referendum

I fully agree with this piece by The Economist. It says that the outcome of the Scottish referendum will be the same no matter who wins, but that the negative effects on the stability of Europe and Brittain (and of Brittain in Europe) of a yes vote will be enormous. A secession referendum was irresponsible. Instead, a referendum on an agreed proposal for a shared institutional architecture would have avoided all these negative externalities. I would add that a yes victory will increase the appetite for similar referenda by national minorities but eliminate it for central governments: no one will be as reckless as Mr. Cameron. This is what The Economist says:
"The three main unionist parties—Labour, the Liberal Democrats and the Conservatives—have each published proposals for further devolution. The Tory report, published in June, was the most striking: a party that has long stood for political centralisation offered Edinburgh full control of income tax. And the nationalist government has alighted on similar ground from the opposite side. Last November it published a 670-page manifesto insisting that an independent Scotland could share the pound, stay in the EU and remain closely integrated with the rest of Britain. Over the next few weeks campaigners from both camps will assure voters that their particular brand of semi-detachedness holds the solution to their day-to-day gripes.
This is remarkable, and lamentable. A victory for the nationalists would send tremors far beyond Scotland. It would trigger calls for David Cameron, the Conservative prime minister, to resign. It would change the arithmetic, and quite possibly the outcome, of next year’s general election. It would embolden separatists in Spain, Belgium and elsewhere. The difference between the campaigns’ pitches to voters may be relatively modest, but that between a “yes” and a “no” is vast."

Tuesday, August 26, 2014

An inconvenient truth for the Scottish secessionists

OK, Mr. Salmond won the second debate (not the first), but this fragment of an editorial by The Guardian demolishes the arguments of his last attempt to change the forecasts:
"Mr Salmond’s tactic in recent days has been to present Scottish independence as the bulwark against attempts to privatise the NHS. Logically the argument is a nonsense, given that the only person who could privatise the NHS in Scotland is Mr Salmond himself. Nevertheless his attempt to wrap himself in the NHS flag is not, from an emotional point of view, a stupid move for a politician who needs every vote he can get. It embodies an argument at the core of the centre-left case for independence – that the English-dominated UK is bound upon a wheel of deregulatory fire at the behest of global corporate power. Against this Anglo-juggernaut, many yes voters believe, Scots have only one option – an independence that would enable them to protect, in one part of these islands, what remains of the postwar Labour settlement.
If Mr Salmond can persuade enough voters that institutions and principles like those of the NHS are at risk from the union – and would be protected under independence – he may yet manage to ride a wave to victory next month. Even now, with all the polls still pointing to a no vote, and while acknowledging that public opinion tends to swing towards the status quo in the final weeks of most referendum campaigns, this cannot be ruled out. The welfarist desire to protect the people’s social gains, incarnated above all in the NHS, is rightly emotive. But social gains are also issues of material self-interest for millions of people. Such issues rightly matter to the voters, as the general election of 2015 is certain to show.
Yet the inconvenient truth for the pro-independence Scottish centre-left is this is as true south of the border as north of it. There is a myth in the yes campaign which casts the Scots as unusually social democratic, fair and inclusive in ways that the English and Welsh are not, in a Britain that has otherwise bent the knee to corporate interests. The trouble with this is that it is not true. On issues such as the NHS, there is little significant difference between Scottish opinion and English or Welsh. Even more significantly, an independent Scotland would have to face the problem of protecting the NHS and other social gains in conditions very similar to those that confront the UK.
The reality for modern nation states is that they all face a global economic order in which corporate power is in the ascendant, threatening the livelihoods of the poor and averagely well-off with no respect for borders, and against which most elected politicians can only deploy limited authority. This is what modern politics is fundamentally about. The NHS is caught in the crosshairs of that conflict, needing ever larger amounts of taxpayers’ money at a time when demands for public austerity remain strong. That would be as true in an independent Scotland as it is in the UK.
And not just in the UK. Today in France, President Hollande attempted to relaunch his presidency with a new government from which the Socialist party’s anti-austerity left would be excluded. It is a reminder that a similarly tough battle between politicians and corporate power is being fought out even in France, with its traditionally strong central state. There may be other arguments for Scottish independence, but the illusion that an independent Scotland could somehow escape these unavoidable contemporary policy dilemmas should not be one of them."

Thursday, August 21, 2014

The last books of the summer

Four books are competing for my attention in these last days of the summer break, and illustrate my always dispersed interests:
-“House of Debt,” by Atif Mian and Amir Sufi, which I bought through Amazon following the recommendation by Nacho González. The book argues that the global economic and financial crisis has been caused by excess debt, and that this dangerously reduces consumption and aggregate demand. The solution is a financial system that is less dependent on debt and more on equity-like instruments that share risk, along the lines of the recommendations of Robert Shiller.
-“Funding the Nation,” by Irish historian Michael Keyes, which I bought in Dublin last week. This is a book about how successful political movements, such as Irish nationalism in the XIX and XX centuries, need financial resources, and how these, in the case of Ireland, were found in Catholic parishes and among Irish-American exiles. It is the story of how financing was key, and how funds were obtained and sometimes misappropriated.
And two books that I bought yesterday in the book-shop of Barcelona’s science museum (“Cosmocaixa”), and that are representative of new frontiers of research –I will probably treat my students experimentally with them this year:
-“Networks. A Very Short Introduction,” by Guido Caldarelli and Michele Catanzaro. This belongs to the “very short introduction” collection, which has short guides on pretty much everything by prestigious scientists and experts, with good bibliographies and references. The analysis of social dynamics in networks has important applications in economics, finance and politics.
-“Neuro. The New Brain Sciences and the Management of the Mind,” by Nikolas Rose and Joelle M. Abi-Rached. They survey the burgeoning research on neuro-sciences, critically discuss their social implications, and present their applications in social and other sciences.