The merits and limits of lottocracy

A friend of mine strongly recommended that I read the book “Against Elections. The Case for Democracy” written by David Van Reybrouck. As the title suggests, the main message of the essay is that elections and democracy are not the same thing. And that to preserve the value of democracy, we have to reduce the scope of elections, and fill it with lotteries to select public jobs.

This was done in classical Athens, as well as in some medieval and Renaissance institutions in Venice, Florence and the Crown of Aragon (“insaculatio”). After the American and French Revolutions, the mechanism was discarded because the elites wanted to keep the new liberal systems elitist and aristocratic through the election of the theoretically “best and brightest,” which were supposed to naturally belong to the upper classes.

I should have read it earlier, because it is a suggestion with which I sympathize (as I tell my students when we talk about de sub-discipline of social choice, between economics and political science). The author dyagnoses a “Democratic Fatigue Syndrome”. And lotteries would be a better remedy than populism, technocracy or direct democracy. They are fair and democratic and they would legitimize the peaceful transfer of power not less than free elections. They would reduce the distance between those that govern and those that are governed.

Canada, Iceland, and Ireland have recently tried different mechanisms, using randomly selected citizen assemblies as part of the public decision making process. In Ireland, one of these mechanisms led to the historical approval of gay marriages.

In Spain, there have been some proposals and experiences only in the margin of the political system (for example, with the Citizens Assembly for Climate Change), but popular juries and presidents of ballot stations are selected by lotteries and the results have been very positive.

The imperfections of electoral democracies have been well known by some of the best social scientists such as Kenneth Arrow and Larry Bartels. Amartya Sen argues that these difficulties should not lead to pessimism or desperation, but to exploring how to improve the existing systems. This can be done accompanying them with tools of deliberation, like those of citizens’ assemblies.

There is little doubt that existing institutions are a very small subsample of all possible institutions, but we are often locked in inefficient evolutionary outcomes because of inertia, vested interests and switching costs.

Of course, there are no panaceas, and following the lessons of Arrow, the perfect mechanism of aggregating individual preferences in a democracy does not exist. The main problems of a lottocracy, beyond the existence of vested interests that stop it, are how to make it compatible with the mobilization of discriminated constituencies (workers and women), and with the political skills (managing alliances and the corridors of power) necessary to push for fair reforms or social transformations.

Workers rights, women rights, green parties: would they have emerged without fighting and mobilization of massive groups? Perhaps lottocracy in the form of citizens’ assemblies is better adapted to solving current challenges such as ethinc conflict and diversity.

Would Ireland have delegated the issue of Gay Marriage to a citizens’ assembly without the fight of the LGTB community through (mainly leftist) political parties in countries that took the step previously? Would women be even accepted in citizens’ assemblies without the previous fight of the sufragettes and the (left wing) parties that promoted female voting?

Doesn’t lottocracy take for ganted many freedoms for which people had to fight through movements, trade unions and political parties? Can we afford to spend massive resources in promoting lottocracy in front of the urgent task of democratically stopping Donald Trump and Marine le Pen?

Elections and political parties will remain necessary for a while, but it is worth exploring the expansion of sortition to new arenas (starting with sports clubs and universities?). Elections and political parties need serious reforms.  These are difficult, but not impossible. When reforms happen (as with secret voting in Chile, or electronic voting in Brazil), the results can be encouraging. Take Chile: citizens’ assemblies by sortition could have helped or complemented the constitutional assemblies that failed to produce a new Carta Magna, but perhaps also would (complementarily) the reliance on traditional parties that had experience in reaching broad-based agreements –and that were marginalized in the constituional process.

UEFA vs the European Super League: regulation, competition and ownership

The recent decision of the European Court of Justice (ECJ) denying UEFA the right to stop the European Super League (ESL) illustrates the dilemmas facing the football (soccer) industry.

FIFA (the global non-profit governing body) and UEFA (its European affiliate), both headquartered in Switzerland, are part of an international monopoly that acts as the gatekeeper of a global club good: the right to play football at the “official” (both professional and amateur) level. We are talking about the most successful and unified global sport. And it is successful, among other reasons, because it is unified.

That is why the ECJ decision does not guarantee the success of the ESL. Without the English (also, the French and German) clubs, it will just not happen. To some extent, the English Premier Legue is already the true ESL. Internationally, the unification of football’s rules and calendar brings value to the fans and stakeholders. It is true that one could think of making numerous improvements, but the challenge is to make them without eliminating the unified character of the current setting.

However, the ECJ has concluded that FIFA and UEFA (both regulators and promoters of competitions) abuse their dominant position. How to solve the problem of abuse of dominant position? Traditionally, market power has been addressed through three mechanisms: competition policy (antitrust), monopoly regulation or public ownership. One can discard the latter in this field (not necessarily in others), because of the diversity of club ownership models and the involvement of federations and other traditions of self-organization. Also, given our fragmented institutions at the global level, there wouldn’t be a way to organize a system of public ownership of planetary scale. That does not mean that the issue of ownership (club-states, tycoons, sportswashing, the German model, member-owned clubs…) should not be the object of (interesting) debate.

The ECJ seems to advocate for a pro-competition model, where agents other than the federations can organize events and tournaments without their permission. In its decision, the principle is clear, but not the way to implement it (it is not the job of the ECJ). Economist Stefan Szymanski’s book “Playbooks and Checkbooks” has a chapter on the history of antitrust in sport, showing a dynamic field and many open questions, among them the treatment of Sports leagues as joint ventures that make possible a better product for consumers. One could extend the argument to global arrangements.

A look at basketball shows the problems of a non-unified approach. The basketball Euroleague shows that the model is possible, but the lack of a global calendar also shows that the final product could be much better if it were globally unified in a hyerarchy similar to football.

Not all monopolies are bad -if they can be regulated. The problem of a global monopoly such as FIFA is that there is no federal global regulator, but a patchwork of decisions by several jurisdictions. When large democratic jurisdictions have been involved in one way or another (the FBI 2015 investigation, the Bosman Ruling), the changes have been significant. But there is no day to day regulation.

In Europe, the Champions League or the ESL conquering the week-ends is still a taboo, but would no doubt be a move in the direction of efficiency if the losers (modest teams in national leagues) were somehow compensated.

The current structure, although it is very successful, is still inefficient (there is money on the table, because there are too many boring games), and has other important social problems attached to it, such as corruption, sportswashing or unfairness. My preference is for making progress towards a global regulation keeping the unified character of football, but it will be a second best and it doesn’t surprise me that others try other approaches.

Bill Gates, the unaccountable global sovereign

The book “The Bill Gates problem,” written by the investigative journalist Tim Schwab, is more than a severe account of the sophisticated hypocrisy of an individual, Microsoft founder Bill Gates. It is a criticism of the whole system of “philantrocapitalism” by which billionaires are left to deal with some of our collective problems, in the absence of public action.

Bill Gates is probably the billionaire that has gone farther than anyone in the use business tactics, political influence and philantropy to exercise enormous power without accountability.

The founder of Microsoft decided to give priority to his “philantropic” foundation after the public relations fiasco of the Antitrust case that found him abusing his monopolistic position in the operating systems market. He has used the high profile from his Gates Foundation not only to leave behind his past efforts to control a global market, but also to try to hide other reputational problems, such as his proximity to sexual predator Jeffrey Epstein.

An individual that did not finish his studies is today giving lessons all over the world about everything from vaccines to education and agricultural techniques.

Having more money than the World Health Organization, he played an important and active role in the biggest failure of the Covid-19 pandemic: the inability to expand at the global level the success of vaccination programs of the European Union and some other jurisdictions.

Bill Gates has been using unaccountable, unelected power to try to impose his ideas and preferences on global health, US education or agriculture in Africa. Billions of dollars have been wasted giving priority to problems or ways of solving them that were of secondary importance compared to objective priorities. The resources would have been better spent by taxing the individual and his coporate interests and using the proceeds to fund programs with the accountability provided by transparent democratic institutions.

Schwab wonders why should Gates impose his idiosyncratic preferences combined with apparently technocratic solutions with little input from those affected. By subsidizing significant parts of the media and the academia, his colonial mindset has created a machine that occupies the room left by inexistent global structures that should ideally deal with our global problems. It is a machine that incidentally typically uses “technological solutions” from multinationals on which Gates himself often has a financial interest. An illustrative example of his many failures is his attempt to revolutionize the educational system of the USA with technologies that would help teachers to push students to pass homogeneous standardized tests. The failure is being used as a case study of those conditions under which powerful incentives backfire.

As the subtitle of the book reveals, the “good billionaire” is a myth, which is revealed when we know that there has been no trade-off between the charitable actions of the Gates Foundation and the wealth of Mr. Gates: he has become even richer since he has given priority (in his public profile) to the Foundation, remaining among the wealthiest persons in the world.

A day in the life of an absurdly segregated land

Nathan Thrall, a journalist, has recently published the book “A Day in the Life of Abed Salama,” almost coinciding with the brutal attack of Hamas in Southern Israel and the war in Gaza. Although the events in the book take place in the West Bank, it is difficult to think of a better descritpion of the context of the Israel/Palestine conflict.

“Thrall’s book owes its title to a man he now regards as a friend: Abed Salama, who lives in Anata, a town in the West Bank near Jerusalem that is almost encircled by the Israeli separation barrier. In 2012, Salama’s five-year-old son Milad was killed, the bus on which he was travelling for a school trip having crashed. In his book, Thrall describes the many iniquities Salama must, as a Palestinian, endure in the hours and days following the accident, beginning with the impossibility of travelling to the hospital in which Milad might be lying.”

(You can read the above paragraph in an Interview with the author in The Observer)

In his book, Thrall describes the reality of segregation, which is ultimately the underlying cause of the bus accident that killed Abed Salama's son. Because of the segregation wall and the meticulous system that separates two communities, for example, it takes hours to cross less than 9 miles. Necessary emergency services are uncoordinated and inoperative. The book reveals the huge human costs of preserving a modern state just as a club for a privileged ethinicity, when it coexists with another discriminated community in the same land.

The book also describes the hate reaction in Facebook: how some young people reacted with joy in the social media to the death of Palestinian children after the bus accident.

Thrall, one of the many Jewish that criticize the government of Israel and the discrimination of Palestinians, dedicates the book to his children: “Our three daughters… have grown up in Jerusalem, just over the wall that segregates them from the children in this book. Although that segregation seems unlikely to end in my lifetime, I wrote the book in the hope that it can be dismantled in theirs.”

 

Football populism and tactical evolution

I gave a talk on “Soccer and populism” at Esade invited by Lorne Walker. I started by giving examples of famous club officials whose behavior few would doubt that fits with the category of “populism.” The definition of this concept is a literature in itself, but one way to fix ideas is to think about individuals that nobody doubts that they are populist, such as Donald Trump or Boris Johnson.

These examples of famous football populists include Silvio Berlusconi and Joan Laporta. Berlusconi was the owner of AC Milan in a vertically integrated chain that included a TV network. The vertical integration became political when he created a political party with the name of a popular football slogan (“Forza Italia”). It was so successful that he became Italian Prime Minister. His career as a businessman and politician was surrounded by corruption allegations (which included links with the Mafia) and exhibitions of sexism.

Laporta is not as wealthy as Berlusconi. He is not the owner of FC Barcelona, because the club is owned by its members in a non-profit structure, but there are rumours that he is pushing the club to being privatized. He has been president of the club in two periods. The first one between 2003 and 2010 and the second since 2021. At the end of his first period, he became an elected member of the City Council of Barcelona and regional member of Parliament, and was involved in obscure deals with the Uzbekistan ruling family. In between the two periods, he found time to buy a modest Catalan club in the town of Reus, which became bankrupt as a result.

It is a lost opportunity that the great book by Simon Kuper on Barça finished just when Laporta was elected for the second time, and he just hints at some of the dangers of having him at the helm, including his sexism.

What makes them populist is their constant appeal to the feelings of the masses and their tribalism. Any criticism is an attack on the club and its essences, and they openly behave as political as well as football leaders.

Cycles of rise and decline are then unavoidable in clubs that are too important to fail and generate moral hazard in enormous proportions. Totally uncapable of telling the voting members of the club that it needs to restructure (after also populist management by his predecessors), Laporta has sold assets generating long run revenues to pay for short run expenses and remain barely competitive in the transfer market. But even with this, Barça (after not preparing for the future in the Messi years) goes to the market asking “what can we afford,” while its rivals ask “what do we need.”

Populism breeds managerial instability and tactical confusion: they had years to plan for the substitution of Busquets, and when he leaves, the midfield becomes a mine field. When he started in 2008, he was the result of trial and error in a stable club. When he left, trial and error was disrupted by instability and disorientation.

We’ll see how tactics keep evolving in the rest of this season when and if everybody is available in the midfield. We’ll see whether Lamine Yamal is a new Ansu Fati or, if not Messi, a really differential player. The only wise words from the club that have been pronounced recently were those of Bojan Krkic, another failed wonder boy now in the management team, who said that the objective for Lamal (he’s sixteen) this season is that he finishes secondary education.

I didn’t like Laporta in his first period, but now he is even worse. He has made the transition from looking like Kennedy with the smartest guys in the room in 2003, to becoming an overweight Boris Trump surrounded only by a cottery of incompetent friends and relatives twenty years later. Great football clubs survive. Who knows how long the current phase of decline will last in my favourite team.

The left and Israel/Palestine

The Guardian and other media organizations report today about divisions in the left in Europe and the US about the stance to take on the war in Gaza. Anything we say should start by showing humility and respect for all those who are suffering, and for all those who have opinions that are based on the real experience on the ground. But what happens there affects us all because of the connections between the Middle East and the rest of the world in terms of culture, economics, religion and geopolitics. And because of the spillovers for many other national conflicts. Perhaps these notes may help clarify at least my thoughts on the issue, based on what I believe are progressive principles of common humanity and solidarity.

-Peace and humanitarian aid should now be prioritites. An act of terror followed by hundreds of thousands of people being forced out of their homes, with no prospect of going back to them, is just the current manifestation of a decades long conflict. But people are suffering or dying now, and anyone anywhere with the capacity to help stop this madness deserves support.

-It is the land of both Jews and Arabs. As it has been argued by Jonathan Freedland, these are two peoples (and millions of individuals, all of them different) in deep pain, fated to share the same land. This is not a colonial problem. No one should leave their land.

-The two communities have their worst leaders in decades. The government of Netanyahu took a long time ago an autocratic and xenophobic path that was eroding democracy. Palestian leadership is divided between a terrorist organization in Gaza and a discredited probably corrupt authority in the West Bank. Of course, it is up to the citizenry to choose their leaders, but perhaps the international community should do more to promote a new generation of leadership that can be the protagonists of a renewed and credible peace process (one that learns from the mistakes of previous attempts). The progressive, in many cases inter-ethnic, groups that exist and that promote peace and cooperation, should not be silenced, but strongly subsidized.

-The one state (or club) reality that we have now is that there is one strong power in the area, the state of Israel. It allows the devalued Palestinian leaders to manage a few local public goods to keep a fiction, but essentially, mobility and property rights are controlled by a state (Israel) that is not granting equal rights and dignity to all the population under its control. Only part of the population has access to high quality public goods.

-Equal dignity and cooperation among all individuals in Israel/Palestine should be a priority not ten years from now when a hypothetical peace process is reactivated and delivers some fruits, but today. The US and the EU should have enough leverage to make this happen. Palestinian mothers today perceive a very low opportunity costs of sending their children to suicide missions against Israel. Only shared justice and prosperity will increase this cost.

-Are you sure the solution is more self-determination? Is the two-state solution necessary? Sufficient? Covenient? It looks more like a lazy synonim of reactivating some peace process, because that is what the UN resolutions say. But given that it has not happened since it is the official position of the UN from 1947, while there was a secular leadership in both the Israeli and the Palestinian side, one wonders how it can happen today. Before any “solution” is reached, the emphasis should be on improving the life and security of everybody, equally. And if ever a “two-state solution” is reached, the first thing that the two “states” should do is to start cooperating in a very small territory to manage everything from transport, to water, to a shared capital, to trade…

Climate change in the classroom

The Word cloud of CORE students reflects year after year a consistent concern for climate change, probably the biggest problem of our time and the decades to come. CORE’s free e-book The Economy reflects that, starting from Unit 1, and also in the chapter on market failures and a capstone chapter at the end.

In my Introductory Economics class, I asked my students to prepare class presentations with graphs on the correlation between carbon emissions and temperature changes (using data and guidance from the e-book Doing Economics), and to reflect on the policies and institutional players that interevene in trying to address the emergency.

Students immediately realize the interdisciplinary nature of the problem, which combine the knowledge from physics and natural sciences, and the insights from economics, political and behavioral science. They become familiar with the challenge of preventing temperature increases of more than 1.5 or 2 degrees, but they also realize that it is more than a heat problem, with the risk of forced migrations, and natural disasters.

Although the exercise was framed to make students think about the difference between policies (taxes, regulations) and organized institutions (United Nations, national governments), they also see that institutions are not only formal organizations as players, but also the formal and informal rules of the game, for example about the role and voice of future generations, those that will be most affected by the problem. In any case, they see that policy debates are less important than the need to introduce institutional changes, for example in terms of creating global enforcement mechanisms.

The difficulties about reforming institutions and policies come from the uncertainty about the exact profiles of the problem (not about its importance) and the lack of immediate  awareness. Current institutional players find it difficult to cooperate or coordinate in a long run problem. Although the UN has recently been speaking loudly about the emergency, national governments find it easier to cooperate with short run emergencies, such as wars or pandemics.

Three different games in The Economy 2.0’s Unit 4 are meant to model the basic dilemmas of climate change today. In these three games, China and the US have to decide between restricting or playing business as usual (BAU) either in a prisoner's dilema game (where the equilibrium is not the socially optimal outcome), a coordination game (where the socially optimal outcome is an equilibrium but there is also a suboptimal one) and a hawk-dove (or chicken) game, where the distributional problem is more acute but also the socially desirable outcome of both countries restricting is not achieved in equilibrium.

The third version (the chicken game) is very appropriate to see the combination of redistribution and efficiency issues: there is conflict (between countries and income groups/social classes) and common interest. Lobbies (mainly large polluting corporations) are not shown in the simplified games, but they are not missing from the students’ presentations. In these I expected more references to the “de-growth” controversy, but I saw none of it.

Finally, although we used them as a pedagogical tool, I advised the students to be careful with 2x2 games (eg Israel and Palestine in another context) that obscure the complexity at the interior of the institutional players and forget about other relevant stakeholders.

The Economist against Bidenomics

The magazine The Economist was founded in 1843 to defend free trade and a limited government. Since then, free trade has globally expanded (and contracted several times) and the size of government has expanded almost continuously, together with life expectancy, education but also the destructive power of wars. Today, public expenditure is more than 50% of GDP in some of the richest and more advanced countries of the world. In the future, if societies want to improve their welfare, it will most probably come from a combination of free trade and good (and large) governments.

In a special report and an editorial this week, The Economist calls “Homeland Economics” the protectionist turn in the economic policies of the US, the EU and other jurisdictions, including Japan and India.

The usual arguments against protectionism (free trade promotes efficiency) are combined with an attack on new industrial policies targeted to strengthen value chains. The Covid-19 pandemic and the war in Ukraine have triggered an increase in the resources spent on public intervention in specific industries. At the same time, governments like the Biden administration (with Bidenomics) have taken advantage of the enhanced tolerance with government activism to introduce subsidies that accelerate the Green transition.

In what The Economist calls the era of neoliberal globalization (the decades between the fall of the Berlin Wall and the global financial crisis, where poverty and global inequality decreased), government intervention was not absent. At the same time, inequality in specific countries increased or was scarcely reduced from very high levels (as in Latin America), and climate change reached scaring dimensions. It is hard to see how to achieve better living standards (equitable and sustainable growth everywhere) without a balanced combination of markets and governments.

New Industrial Policies, according to The Economist’s special report (which sounds the alarm about introducing geopolitical objectives in economic policies, as if the two had been disconnected in history), will in fact increase inequality, because it is no longer clear that with new technologies manufacturing jobs (the traditional objective of “industrial” policies) are low-skilled any more. At the same time, less trade will mean more global inequality because the improvement of living standards in emerging economies will stop.

The environmental critique of the new interventionism is more moderate. The magazine’s special report accepts that New Industrial Policy can be a second best instrument to address climate change, because voters will better accept sacrifices from these imperfect policies if they create new jobs.

The Economist will not stop Bidenomics and similar policies and governments will remain as necessary as ever if not more. Some cautions are in order, though. Some protectionist policies have a high cost in terms of budgets and loss of productivity. And shocks are often better absorbed by markets than by planning.

That is why new forms of intervention should probably focus on: global infrastructure and development; limiting the power of global multinationals; accelerating the fight against the climate emergency; productivity and job quality. That will not mean more markets and less government, but better institutions including both.

Good Jobs

Traditional economics has a preference for redistributive rather than predistributive policies. However, some pathologies of our economic system can only be tackled when they originate. This is the case of bad jobs.

The quality of employment (Rodrik's "good jobs") is given by a series of material and immaterial characteristics. With respect to the material ones, the first is without a doubt real wages high enough to more than satisfy in a lasting way (with stability) people's vital needs (so that a large majority of working people feel part of the "middle class" and fully integrated into society). And the second is quantifiable or objectively decent working conditions, such as working hours and the structure of the working schedule, the possibilities of promotion (within the same organization or in other organizations) or the possibility of combining the professional career with other vital activities. Among the immaterial characteristics, we can consider the degree of creativity of the tasks to be developed, the formal or informal representation in decision-making about the tasks to be carried out or in the governance of the company, the quality of personal relationships in the company organization and in daily work (including the relationship with customers and suppliers) and in general the degree of "disutility" (anxiety, exhaustion, "stress", "burnout") of the effort in the workplace or to what extent the workplace contributes to personal self-fulfillment and satisfaction, including training and learning opportunities. 

Good jobs are workplaces where there is no abuse of power or exploitation of vulnerable situations, or verbal or sexual abuse, where trust and cooperation are valued, and where power is distributed and decisions are made fairly and transparently, with autonomy and participation of working people. Included in this section would be those issues that have to do with whether new technologies are used to replace or control work, on the one hand, or if they are used to improve work experience and work productivity, on the other, along the lines of Acemoglu and Johnson in their recent book "Power and Progress".

This is not something that can be addressed with taxes and transfers. It requires “relational” policies that operate in concert with strong and functional worker unions, without stifling the innovation incentives and flexibility of organizations.

What to say to first year students on the first day?

There is only one opportunity for the first time. In my first (and perhaps a little bit of the second) class on Introductory Economics of the degree on History, Politics and Economics, I have the privilege of almost full attention by almost all of my students (after the first class, attention and attendance tend to gradually diminish).

Applying my experience as student and teacher, it is important to start before the first class, perhaps sending a message, or going to the reception meeting, or asking a colleague for 5 minutes of her class if hers is some days before mine, and telling them to do something before the first class, such as reading some brief article or having a look at the textbook (in our case, a free e-book, The Economy).

In the first class, I try to give a taste of the contents, by summarizing the ingredients of the full course but also by showing some graph with data about an important topic (such as global inequality as in Unit 1 of The Economy).

I tell students that teaching or learning is a cooperative task, as most things are in human life. I introduce the concept of “Externalities” by telling them that asking questions in class generates positive externalities, and looking at the smartphone or talking to the neighbour generates negative externalities.

I don’t shy from giving them advice that is rooted in what you need to be a good student (I think they appreciate this, although I’m not sure that anyone has given me this advice explicitly): 

-Be modest and ambitious at the same time: be aware of the constraints, but try to satisfy your preferences, especially when these can be enjoyed with others and not against others.

-Develop critical thinking, especially with yourself and your tribe, without falling into paralysis or nihilism.

-Ask questions, seek help, never miss an opportunity to learn or have fun.

The first days are a good opportunity to understand what do the students care about: CORE’s Word cloud is a good tool. I show them the Word cloud from the previous 2 years, reflecting that Covid and Inflation have been sudden presences, but that Inequality and Climate change look more permanent.

On methodology, I try to convince them of the complementarity between theoretical models and empirical evidence, and about the usefulness of using good definitions, although these are more ambiguous in social sciences than in natural sciences. This I can illustrate with the definitions of economics and capitalism in Unit 1 of The Economy

Economics is not about shopping, but about understanding the world (on this, The Economy is superior to traditional textbooks) and changing the world, as Wendy Carlin once said. I will not teach them how to be rich, but how is wealth distributed. Although institutions give me disproportionate power in the classroom, courses are always a process of collective learning. I tell them “I also learn from you and you can and should learn from each other (if you talk to each other)”.

Finally, I emphasize the importance of the multidisciplinary nature of their degree in History, Politics and Economics. This gives them a great opportunity to be more realistic, because things are not separated in the real world, as they are in academic disciplines. But there are risks to be avoided. For example, multidisciplinarity should not be superficiality, but selective depth on some of the key issues of the subdisciplines. And the opportunity must be seized to develop a truly multidisciplinar perspective on some topics. This is what will give them an advantage relative to those that only get the deep perspective of one of the subdisciplines.

Good jobs and Bidenomics

Recent talk about “Bidenomics” suggests that there are new developments in economic ideas, even beyond the fate of US politics. These new ideas are the result of the re-evaluation of the role of governments, markets and firms after the global financial crisis, Covid-19 and the war in Ukraine.

The new ideas (sometimes a new insistence on old but useful ones) include pro-labor and not anti-labor use of technology, participation of workers in governance, decentralized organizations, new antitrust policy, public investment and subsidies in climate friendly technologies that complement private investment, and others.

Some have talked of a return of old-fashioned industrial policy, but economist Dani Rodrik recent paper “On productivism” shows that ideas about the promotion of “good jobs” go clearly beyond that. 

Rodrik analyzes how the replacement of the neoliberal paradigm in economic thought with a new one, which he calls "productivism," should occur. These "paradigms" have the advantage that they allow ideas and actions to be oriented, but they have the disadvantage that they can cause excess rigidity and lack of adaptation of the recipes to local circumstances. 

In any case, the author considers that the void left after the decline of neoliberalism (which in turn replaced Keynesianism) will be filled by new paradigms, both whether you want or not, and that is why it is necessary to participate in the debate about what strong ideas should be tried to be introduced. To do this, he proposes the concept of "productivism." as a flexible paradigm that must be adapted to local circumstances. This proposal differs from neoliberalism in that it gives an important role to the state (and civil society) in achieving economic opportunities for all territories and all segments of the workforce, acting directly on the supply side to combat some of the scourges of today's world, such as inequality or climate change.

Productivism would consist of prioritizing interventions in the production phase in the companies, in close cooperation with them, aimed at creating "good jobs". If until now public intervention to improve the well-being of the population had prioritized redistributive policies (taxes and the welfare state), accepting the jobs created by the market, now it would be a matter of intervening directly so that quality jobs are created. Companies should "internalize" the impact of their decisions on the well-being of the entire population, without assuming that increases in productivity will be automatically distributed throughout the economic system as a whole.

Rodrik understands good jobs as those that provide reasonably high salaries as a safe path to the middle class and a good standard of living (to avoid “economic dualism”), job stability and promotion possibilities, generating positive externalities with local communities. Promotion policies of good jobs would be developed through coordination between business and the public sector to generate economic opportunities throughout the territory.

These quality jobs should not be restricted to large companies, but should be a priority especially for small and medium-sized ones. Productivism would focus on actions with a medium impact on productivity, to avoid the «emptying» of the intermediate parts of the labor force, which would be complementary to other existing interventions, such as investments in education and training or tax incentives to the companies.

The author points out that the policies he proposes are in line with the proposals by MIT economist Daron Acemoglu (recently collected in the book published with political scientist Simon Johnson, Power and Progress), in the sense of promoting technologies that "increase" rather than "decrease" work. There is a risk that new technologies, such as artificial intelligence, greatly increase the creation of wealth, but that this is compatible with the impoverishment of workers, as has happened with other technological changes in history when they have not gone accompanied by institutional changes that promote the general interest and redistribution.

This paradigm shift should be accompanied by an improvement and adaptation of the capacities of the public sector, to guide labor, regional and industrial policies (which should be more based on the services of small and medium-sized companies than in the manufactures of the great «national champions») in the direction of much greater coordination with the productive structures. The internalization of externalities by companies would be part of the system of governance, and not simply a form of corporate social responsibility, and the boundary between growth policies and social policies would be diluted. 

It is clearly too soon to evaluate the real impact of these ideas, but we must pay attention, because they are being very influential in the largest economy.

From zero sum mentality to negative sum reality

Not everything is a penalty kick –the quientessential zero sum interaction, where there is pure conflict, and no common interest among the players. In fact, most social interactions are not zero but positive sum: they combine conflict and common interest (think of a firm or a family).

A problem arises when what is a positive sum game is perceived by the main players as a zero sum game, and opportunities for mutual gain are not realized. Economist Maitreesh Ghatak from the London School of Economics uses a bus analogy: when a bus is crowded and the riders are ethnically heterogenous, instead of blaming the lack of budget for more buses, some may be tempted to blame the excess of riders from “the other” ethnicities. 

According to Ghatak and his co-author Vedier, “Economic hardship or rising inequality or slowdown of economic growth alone can create political discontent. When any two of these three aspects of economic malaise coincide, discontent turns to despair, but there is still a vent through which some steam goes of. For example, economic hardship and rising inequality may still seem tolerable if there is some prospect of economic growth, the benefts of which are expected to trickle down in the form of a higher standard of living in the future. But when long-term income stagnation for most of the population and decline for some go together with high rates of income growth at the very top, you have zero sum economics –when your loss is someone else’s gain. Zero sum economics turns despair into rage against the establishment and whips up a perfect political storm,” which is what Trump’s electoral victory in 2016 really was. 

“When long-term income stagnation for most of the population and decline for some go together with high rates of income growth at the very top, one has zero-sum economics and that naturally raises the possibility of using various kinds of social identities to claim a bigger share of a fxed sized pie.” They show that in ethnically or racially polarized societies this naturally leads to the salience of social identities that enable majority ethnic groups to vote for policies that exclude minority groups so that they get a greater share of a dwindling surplus.

Brexit and Trump, seven years later, have proven politically and economically disastrous, but they are not totally defeated. What comes after rage? Why don’t we see more disappointment with these proposals? A combination of economic and cultural issues keeps complicating the analysis. Biden is clearly better economically (see Freedland and Krugman) and, yet, Trump can win again. A majority of Brits regret Brexit, but no political party wants to reverse the decision.

The Brexit Project also convinced voters that they were in a zero sum game with the EU. Now citizens realize that there was also common interest with Europe and they are immrsed in a negative sum post-Brexit reality.

Journalist Peter Foster in “What went wrong about Brexit and what we can do about it” (the last book to give details about the disaster that Brexit has been, see a review here), writes this: “Understandably, Brexit played on the insecurities of communities that felt they were losing their sense of agency in face of global forces: big tech and social media; flat wages and unaffordable houses; low growth and rising job insecurity; immigration and outsourcing. Those issues have roiled all industrialised democracies in different ways, with differing results. But the original sin of Brexit was to promise that leaving the EU would make the UK better able to meet those challenges. It didn’t, it won’t –and it was never going to. Those who made those rush promises should have known better. Most of them surely did.”

The UK has decided to come back to the HORIZON European research program. As a pro-European anglophile, this makes me happy. My prediction is that they will come back to everything (including the single market at some point), but they will hardly be accepted again at the decision-making table. They will become rule-takers, (some) reluctantly accepting that the interaction with the EU is a positive sum one. So much for sovereignty.

What's wrong with football officials?

The current scandal about the sexually abusive behavior of the president of the Spanish football (soccer) federation (and member of UEFA’s executive committee), Luis Rubiales, is just the last of a series of scandals of this official in particular, and of other football executives elected by the structure of professional soccer.

In 2018, Rubiales replaced Angel M. Villar, who had gone to prison under corruption charges. That was just a few years after Gianni Infantino had replaced Sepp Blatter in front of FIFA, soon after the FBI had brought charges of corruption and organized crime against several members of the FIFA executive committee.

Infantino committed to reform FIFA, and appointed a team led by legal scholar Miguel Poiares Maduro to work on proposals to change the governance of football. After some time doing his work, Poiares resigned. He has explained his experience here and here. He concluded that football is impossible to reform from inside.

Rubiales’ behavior is unfortunately not uncommon in Spain (or other strong soccer communities). It is just that now it is incompatible with supporting the values represented by the very successful women’s national team, and the contradiction is unbearable. 

The journalist Simon Kuper’s book “Barça. The rise and fall of the club that built modern football” explains (p. 370) about Joan Laporta, the president of FC Barcelona (the team that had 11 players in the final of the World Cup, 9 in Spain, and 2 in England): “There was trouble on election day after he (Laporta) told a young woman with whom he’d pose for a photo: ‘Call me when you’re eighteen’. The only female member of his campaign slate was sent out to explain that he’d meant he’d be signing the girl to a Sports contract”. In the next few pages, the author expands on the Laporta style, including his inclination to appoint relatives and friends and get rid of professionals in executive positions.

Poiares has also explained that women are discriminated in their access to positions of responsibility in the structure of football. The Assembly of the Spanish Federation that Rubiales has called to organize his defense, only includes a symbolic presence of women.

Corruption, sexism, arrogance, lack of transparency, are well-known characteristics of the governance of football, even more than in other Sports, because of the immense power of their governing bodies, itself the result of the global success of the sport. Transparency International has this thread on the structural features that facilitate "sextortion" in sport. FIFA is a global unregulated monopoly. Only the power of public opinion (like with stopping the European Super-League) and perhaps the action of large democratic jurisdictions (like the US or the EU) can constrain them. But success is even then only temporary. For example, the US Attorney General that led the case against FIFA in 2015 works now for a law firm hired by FIFA and has spoken recently favourably of the efforts of the institution to reform.

There are clearly serious governance issues behind a democratic façade. Those who elect the executives depend on the favours of the elected. This unaccountable power can only be stopped by popular pressure, affecting the decisions of sponsors and large democratic jurisdictions.

In previous scandals, Rubiales first line of defense was that attacking him endangered the award of the 2030 World Cup to Spain (with Portugal and Morocco). Independently of whether this World Cup is necessary for Spain, now Rubiales’ resistance to resign is the main reputational obstacle to organize the event. But if Rubiales resigns, the same governance structure and culture that put him in command (and Blatter, Infantino, Laporta) will remain in place.

I have written more about these topics in my book (in Spanish) "Pan y Fútbol" and briefly in my Introduction to IEB's Report on soccer and economics (in English, Spanish and Catalan).

Wilson's mistake

After the first World War, US President Woodrow Wilson promoted a number of steps (the “fourteen points”) to facilitate a durable peace. One of them was interpreted as the so-called right of the peoples to self-determination.

The Fourteen Points were a proposal made by the President in a speech before Congress on January 8, 1918, outlining his vision for ending World War I in a way that would prevent such a conflagration from occurring again (in that sense at least, he failed, as it did occur again). They also were intended to keep Russia fighting on the Allied side, to boost Allied morale, and to undermine the Central Powers.

During World War I, U.S. President Woodrow Wilson promoted the concept of "self-determination," meaning that a nation—a group of people with similar political ambitions—can seek to create its own independent government or state. The idea is also alluded to in the fifth of his Fourteen Points, although the words "self-determination" are never explicitly used.

Point fifth says: “A free, open-minded, and absolutely impartial adjustment of all colonial claims, based upon a strict observance of the principle that in determining all such questions of sovereignty the interests of the populations concerned must have equal weight with the equitable claims of the government whose title is to be determined.”

The principle does not state how the decision is to be made, nor what the outcome should be, whether it be independence, federation, protection, some form of autonomy or full assimilation. Neither does it state what the delimitation between peoples should be—nor what constitutes a people. There are conflicting definitions and legal criteria for determining which groups may legitimately claim the right to self-determination. The United Nations has enforced the concept for groups under colonial control, but not for regions of developed countries with a significant number of secessionists.

According to Wikipedia, since the early 1990s, the legitimatization of the principle of national self-determination has led to an increase in the number of conflicts within states, as sub-groups seek greater self-determination and in some cases full secession. The 2000 United Nations Millennium Declaration failed to deal with these new demands, mentioning only "the right to self-determination of peoples which remain under colonial domination and foreign occupation."

Major problems remain defining "peoples" (or deciding which authority will decide who constitutes a people and who does not), respecting the rights of minorities, and dealing with distributive dilemmas when seceding groups are relatively rich and contribute financially to the welfare of other groups. "Partitions" are not like assembling and disassembling Lego pieces, as once said the economist Branko Milanovic. A meaningful application of the right of self-determination, interpreted as the right to secede, requires that the Planet be populated by non-overlapping well-defined “peoples” or “nations.” This assumption does not hold in practice. They are not well-defined and, to the extent that sometimes they are, they do overlap in many cases.

The written Constitutions of well-established democracies (all of those in the EU, for example) do not accept the right to secede of parts of a territory.

Israel and Yugoslavia are examples of the contradictions that are inevitably reached when real communities try to apply Wilson’s principle. Northern Ireland, instead, reached a (so far durable) peace agreement under different principles, faclitated by the existence of the European Union, and put in danger by Brexit. Ethnocratic temptations in India, in the US, in Russia (think of Putin’s referendums) are further reminders of the risks of projects that underestimate the practical difficulties and the moral dilemmas of creating new nation-states, expanding the current ones, or rejecting minorites from them. Federalist roads not taken in Africa or Latin America have degenerated into fragmented continents, but are a reminder of a better possible post-national future.

Orwell and truth, today

 “The Ministry of Truth,” written by Dorian Lynskey, is a “biography” of George Orwell’s book “1984.”

It is a biography of a book, in two parts. In the first part, it explains how Orwell wrote the book in the 1940’s and which were the motivations for him at that time. The author had been in the Republican front line in the Spanish Civil War (he writes about that in “Homage to Catalonia”) and became a fierce critic of Stalinism from the left. “1984” is a dystopia of what could happen in the extreme if totalitarian regimes took over the world, with the fresh memory of Hitler and the contemporary experience of the Soviet Union in mind. Orwell focuses on how the totalitarian regime would manipulate the truth and the mind of individuals.

In the second part, the book discusses the influence of the book after the death of its author shortly after he finished writing it. That is the most interesting part of the book. Although in the real year of 1984 things did not look as Orwell had predicted, Lynskey shows then that many aspects of the current world (where nazism has been long defeated and the Soviet Union no longer exists) are not that different from what Orwell had warned about. After all, we are in the times of post-truth and intrusive social media.

The book starts and ends with a reference to Donald Trump. In January 2017, the book explains, the new president took the oath of office and his press secretary later said that it was “the largest audience to ever witness an inauguration.” He could not prove his preposterous lie and described the statement as “alternative facts”. Over the next four days, US sales of “1984” rocketted by almost 10.000 per cent, making it a number one best-seller.

The afterword of the paperback edition finishes with a reminder of the speech given by Donald Trump after the election he lost against Joe Biden, in which he alleged, without any evidence, that there was widespread election fraud and that he was, in effect, the victor. Between 2016 and 2020, Trump had told thousands of well documented lies. Those following him, believeing or not his lies, staged a coup on January 6th 2021 and are trying to put him again at the highest office in 2024, trying to learn from the mistakes that prevented them from winning in 2020.

Other examples of the manipulation of the truth are provided by China’s President, Xi, and by Vladimir Putin. Orwell was a democratic socialist who was critical of any form of totalitarianism, from the right or from the left. His most famous books are a criticism of Stalinism (“Homage to Catalonia”, “Animal Farm”). In his most important political experience, the Spanish Civil War, he sided with POUM, an anti-stalinist marxist Catalan group.

But the lesson today in democratic societies, according to the author of this great book, is that the biggest danger lies mostly with the radical right. Please, read “The Ministry of Truth”.

 

The Chicago Boys and the separation between politics and economics

Sebastian Edwards tells a fascinating story about “neoliberalism” and the Chicago Boys in Chile. The Chicago Boys are the Chilean economists trained in the University of Chicago who had important responsibilities during the Pinochet dictatorship and beyond. They were strongly influenced by economists such as Friedman, Hayek or Harberger, who advocated an expanded role for markets, and a very limited role for governments. Edwards is very well positioned to give a very complete and balanced account of the somehow unpleasant story of the participation of prestigious academic economists in the economic management of the military dictatorship of Augusto Pinochet in Chile between 1973 and 1989. He was trained in Chicago University, but is not a Chicago Boy. Instead, he was a socialist activist opposed to the dictatorship in his youth. He shows empathy both for some of the economists involved, American (such as Friedman or Harberger) or Chilean, and for those who opposed the neoliberal model on occasion of the students’ demonstrations that ultimately led to the election of Gabriel Boric, a student leader, as President of the Republic in 2021.

In the 1990s and early 2000s (not before), there were great results to be shown for “the model.” But what was the model then? Actually, the best results took place in the years of the transition to democracy, when the democratically elected presidents belonged to the center-left coalition of La Concertación. The book explains very well that the center-left continued many of the neo-liberal aspects of the model (becuase of its success, because of lobbying from the elites, and because of constitutional constraints) with a more human touch, after the neoliberal model of shock therapy, privatizations and minimal government (except for law and order) had experienced an accute crisis in the early1980s.

Edwards explores three mistakes of the Chicago Boys: the failed pension system, the decision to fix the exchange rate by Chicago Boy Sergio de Castro that resulted in 25% unemployment in the early 1980s, and the narrow focus on extreme poverty instead of expanding it to inequality. The first and the third of these mistakes were among the topics on which the demonstrators focused in 2019 with the social revolt.

The book does not shy away from the moral responsability of the Chicago Boys and their American mentors. Sergio De Castro argued that when taking a job in the military government he was obbeying orders, and that politics and economics should be separated. Some economists easily find excuses in that things can be separated (politics and economics, technical and political issues, efficiency and equity…), when these matters come together in the real world. How could they not know that there were human rights abuses? They were in a government that was a human right abuse in itself, a government that had the original sin of starting by bombing (not precisely in secret) the official palace of a democratically elected president that, independently of his mistakes, had respected the Constitution of Chile.

Friedman and Harberger intervened for individual prisoners when they were requested to do so, but they never condemned the nature of a totalitarian government that did not respect elemental freedoms. These were great economists that contributed to reinforcing a crime.

For a while, they won the war of ideas, but this war was easier to win with guns and powerful lobbies. Now they have to fight it in an open, albeit imperfect, democratic society.

Sovereignism

I’m spending a few days in Lleida, one of the four province capitals in Catalonia, located in the northwest of the region. In the hotel where I’m staying, the very kind receptionist that welcomed me and my daughter when we arrived is from Eastern European origin. In the hotel’s neighbourhood, most shops, bars and restaurants appeal to the mostly African immigrant population. This is not uncommon in today’s Catalonia, a small open economy in the core of the euro zone.

Near the hotel, I spotted a VOX (the far right party, which has a small presence in the local city council of Lleida) election campaign poster: it shows the face of its leader and the word Fronteras (“Borders”), next to Lo que importa (“What matters”). Other things "that matter," in related posters, are “family” and “security.” Besides a conventional far right set of messages, VOX –a party that is reaching regional agreements across Spain with PP, the more conventional conservative party- also calls for the prevalence of Spanish justice over European justice, like the Brexiters, and a call to close borders to stop immigration, which to them is related to crime (according to data and facts, it is related to economic growth and prosperity).

An influential VOX in the Spanish government after the July 23rd election would mean the undoing of Spanish and European federalism, with a more centralist Spain in a more fragmented Europe. Wikipedia defines Sovereigntism, sovereignism or souverainism as the notion of having control over one's conditions of existence, whether at the level of the self, social group, region, nation or globe. Typically used for describing the acquiring or preserving political independence of a nation or a region, a sovereigntist aims to "take back control" from perceived powerful forces, either against internal subversive minority groups (ethnic, sexual or gender), or from external global governance institutions, federalism and supranational unions.

The world of parties like VOX is a world that would be frozen in time, with less diverse populations and harder borders, a world fragmented in ethnocracies and “pure” populations. Of course, that is almost impossible in today’s Europe, but that is what many sovereignist forces are calling for.

Sovereignism is a popular word in Catalonia, to many positively associated to the right of self determination (defended by many self-proclaimed leftists), interpreted as the right to secede, something that the Spanish Constitution (or any written democratic Constitution) does not allow. But it also defines the principles of VOX, Netanyahu and his allies, Modi, Meloni, Orban and many others.

There is also an openly xenophobic Catalan pro-independence party now, called Catalan Alliance, which is the party of the new mayor of Ripoll, the town where the yihadist terrorists of the Ramblas terror attack of 2017 came from. This party has reached the top job in the town because of the abstention of the more conventional separatist conservative party, Junts (“Together”). They plan to expand at the regional level.

Sovereignism is a key component of national-populism, both in the extreme left and the extreme right. The chair person of the Chilean conventional assembly that tried to draft a new Constituion last year, someone associated to left wing populism, and a representative of the Mapuche historically discriminated ethnic group, boasted in an event the support of Carles Puigdemont, the leader of Junts, last year. Nationalism, identitaranism or sovereignism are probably the most effective drivers of national-populism beyond traditional ideological divides.

Brexit and Rodrik’s trilemma

Michael Funke and Doudou Zhong do a great job at exploring empirically the famous Rodrik trilemma, by which there is a tension between hyperglobalization, national sovereignty and democracy, so that countries must choose two of the three corners of the trilemma (Rodrik himself explains it here). Using standard measures of globalization, national sovereignty and democracy, they confirm the relevance of the tension.

In explaining their contribution, they give useful examples of jurisdictions that take up different prototype corner solutions in the “two out of three” trade‐off. “For example, China sticks with global economic integration and national sovereignty. To this end, the triangle's third vertex, democracy, is sacrificed. At the other end of the spectrum, we see countries that have opted for deeply integrated markets and democracy vertices. Prime examples include EU countries which have transferred essential competences and jurisdiction to European institutions. The Euroland (common currency) subset of EU countries sits even deeper in this integration and global governance category.”

Funke and Zhong then relate Brexit to the trilemma: “The political priorities revealed by the Brexit referendum are national sovereignty and democracy.” The same message is given in the “official solutions” to exercises in chapter 18 of the CORE Project’s e-book “The Economy:” “voters supporting Brexit did not approve of the trade-off depicted in the bottom row of Figure 18.22. The vote reflected a popular movement that sought to increase national sovereignty that voters believed was sidetracked in pursuit of the benefits of hyperglobalization at the European level. The top row of Figure 18.22 also captures the preferred trade-off for those voting for Brexit,” meaning that British voters chose democracy and national sovereignty to the detriment of hyperglobalization.

Funke and Zhong implicitly accept that this statement is problematic, though, when they also use the trilemma to try to explain what they call the “third wave of autocratization” in recent years. Almost one‐third of the world's population lives in countries undergoing autocratization—a substantial decline of liberal democracy. Inter alia, these countries include Brazil, India, the United States (“America First”), as well as several Eastern European countries. Moreover, the world's leading autocracies, China and Russia, have influenced other countries to adopt their disdain for democracy. But it is well known that Farage (who had links with Russia during the campaign) and Johnson used some of the tools of the national-populist illiberal democratic leaders. A referendum full of lies where people did not know what they were voting for, an erosion of representative democracy and a crisis of Parliament, problems between the judicial powers and the executive… are not a sign of a healthy democracy. Besides, the leaders of Brexit where always clear that they did not want to leave globalization, but did not like the (pretty democratic by the way) European kind. Some comentators have used the metaphor of a “Syngapore on Thames.”

The authors accept that “populism supporting nationalism and restricting globalization, as well as the shift to more autocratic regimes is not an advisible policy prescription.” I agree. In a footnote, they write “Political economists have always been interested in the differences in the economic and political institutions across countries. That is reflected in the widely known “Varieties of Capitalism” debate investigating the cross‐national institutional variations of advanced economies. By analogy, a “Varieties of Globalization” debate is warranted.” And also one on “Varieties of Democracy.” Why some mainstream parties and elites have promoted nationalism in the recent past in some very important countries (the UK, the US, Israel, India…) to erode democracy (but not necessarily globalization) is something that we should keep studying.

The Rohingya and Facebook: A Case Study about hate

“Power and Progress,” the book recently published by Acemoglu and Johnson (AJ), should not be promoted as a book on technology written by two economists, but as a book about the battle for political and economic equality in times of technological change. It is an important book.  I look forward to reading reviews of it by other scolars in the forthcoming months and years. I hope that the debate that the authors try to encourage expands and at least awareness is raised about the importance of directing technological progress at the service of humanity and not the richest and powerful small minorities.

One of their messages is that the economic model of privately owned social media encourages the transmission of hate. We see that in developed democracies, every day. Grievances, ridiculous exagerations, insults, lies, whataboutisms… find a fast motorway in Facebook and Twitter. I am only in the latter, and the protections against hate there (which I try to use) seem to me like an umbrella to contain a nuclear attack. Worse: they are part of the problem, pretending they do something when the business model from which they profit is the engine of the problem.

AJ address the case of the abuse against the Rohingya minority in Myanmar in pages 356-359. By 2017 there were 22 million Facebook users in Myanmar out of a population of 53 million. In a “combustible mix of ethnic tension and incendiary propaganda,” Facebook employed only one person who monitored Myanmar and spoke Burmese but not most of the hundred or so languages used in the country. According to Acemoglu and Johnson and the independent sources they quote in their long bibliographic essay, “the platform had become the chief medium of organizing what the US would eventually call a genocide” against the Rohingya Muslim minority. 

What these economists say about Facebook’s business model had a dramatic, violent expression in Myanmar, but is applicable also in communities where at the moment there is now less (or no) violence: it was “based on maximizing user engagement (to enable the company to sell more individualized digital ads), and any messages that garnered strong emotions, including of course hate speech and provocative misinformation, were favored by the platform algorithms because they triggered intense engagement from thousands, sometimes hundreds of thousands, of users.”

It’s the supply side of politics, stupid!

Larry Bartels is an essential author in the frontier between economics and political science. In his previous books, he established quite convincingly that the rich’s preferences have more weight in democratic collective decision making than the poor’s, and he debunked the “folk theory of democracy,” by which the solution to many democratic political problems would simply be more democracy, because, according to such folk theory voters are always right. And no, the solution is not less democracy, but lower expectations and better democracy.

I learned yesterday from a very good article in the Financial Times by Jan-Werner Müller –an author from whom I learned a lot in his book on populism- that Bartels had just published a new book, “Democracy Erodes from the Top.” I bouhgt it on Kindle, and after a first quick reading, I encourage anyone interested in European populism to get a copy.

In his new book, Bartels analyzes the recent evolution of populist parties in Europe and assesses the supposed crisis of democracy that results from it. After analyzing European public opinion in the last decades until 2019, the author challenges the idea that the surge in populism comes from the demand side of politics, from voters’ attitudes that would be more skeptical today about democracy and the European integration. That’s not what the data says.

What is more consistent with the historical data is that there’s always been a minoritary reservoir of extremist voters, but the size of this reservoir has not changed much over time, and especially it has not after the global financial crisis of 2008. The increasing influence of right wing nationalist populist forces is the result of supply side movements, by which conservative elites make choices that give more weight to destabilizing populists.

That is, Trump and Johnson are endogenous, and the result of their parties resorting to them to reach or keep power in particular historical moments. It is difficult not to think in the same terms in the local cases that are closer to me.

In Catalonia, it was the decision around 2012 of the conservative traditional nationalists of Jordi Pujol and Artur Mas to get hold of the secessionist banner, which increased the political relevance of national-populism in its most destabilizing form. They were surrounded by corruption allegations and criticism of their local version of austerity policies, and they decided to scapegoat “Madrid” for their problems, tapping on a reservoir of discontent based on some real and invented grievances.

The same now with VOX in Spain. The far right is obviously not new in Spain, actually the mainstream Popular Party was founded by a Francoist fromer minister. Now the PP is reaching regional and local agreements with VOX, raising the spectrum of a VOX-PP national coalition after the snap election on July 23rd. There are no more fascists in Spain now than 5 years ago, it’s just that the PP and the social and economic sectors that support it, may need them now more.

Inequality, fascism and populism in Italy and Spain

The current Italian government presided by Post-fascist politician Giorgia Meloni will organize a state funeral in the cathedral of Milan in honour of Silvio Berlusconi, arguably the founder of modern populism. He vertically integrated politics into his business, tried to subvert justice and allegedly had links with the Mafia. His ascent to power had to do with the disintegration of traditional political parties that colluded in a system to keep a strong (but moderate) Communist Party out of power in the times of the cold war.

Spain risks giving itself a government similar to the Italian, if the left and the center-left do not mobilize strongly in the snap election called for July 23rd. Although the current government of Pedro Sánchez is praised by the European Commission and the international media, and has managed the economy satisfactorily, the traditional conservative party, PP, founded by a minister of the military dictator Franco, allied with the far right party VOX, may win a majority. The right in Spain is unfortunately very different from the center-right in Germany, because the agreements that made the transition possible in Spain to lower the stakes of democracy (in the words of Stanford scholar Barry Weingast) kept almost intact traditional institutions such as the Monarchy, the Catholic Church and the economic and judicial elites. VOX is allied with Meloni, sympathises with Trump, questions climate change and is openly anti-feminist. The PP has no problem in sharing regional governments with them.

In my previous post, I listed the possible reasons why democracies such as Italy and Spain are compatible with high levels of inequality. All the reasons are applicable in our countries, as are applicable in other capitalist democracies. But a conservative movement and conservative elites that have had for different reasons a historical advantage make capture, lobbying and corruption (more affordable for the rich) especially present, to the extreme of vertical integration in the case of Italy. I mentioned in my previous post “Agenda-setting and mobilization of non-distributive agendas by the rich (strategic political supply, eg plutocratic populism).” Nationalisms feeding each other, anti-immigration feelings and cultural battles are clearly present in the two countries. Trumpian techniques such as lies and de-humanizing insults to the political rivals are also part of the tool-kit.

Globalization, inequality and democracy in class

The CORE Project’s e-book “The Economy” (it's free, read it!) starts with inequality (Unit 1) and finishes with politics (Unit 22). So I thought it would be fitting to end the course discussing with the students how is it possible that democracies are compatible with inequality, and in particular the concentration of the benefits of economic growth on the richest 1%.

To discuss the answer to this question, at the end of the 16 main units of “The Economy,” we discussed a selection of the “capstone” chapters 17-22. After showing them a graph with the historical ups and downs of globalization since the end of the XIXth century and the graph of “Milanovic’s elephant,” we discussed Rodrik’s trilemma (Unit 18), and redistributive preferences (Unit 19). Then I presented the Median Voter model (Unit 22) as a benchmark with which we can compare more realistic polities. Using additional material, I proposed an exercise with three type of voters and 3 alternatives, showing that different voting systems may yield different collective outcomes (without changing the individual preferences) and none of these voting systems is perfect (echoing Arrow’s Impossibility Theorem).

Based on “The Economy” models, on the article of Bonica et al. in the Journal of Economic Perspectives, and my own thinking in discussion with the students, I came up with this list of non-exhaustive answers to the question of “why democracy is compatible with increasing inequality?:”

-Objective constraints to redistribution at the national level due to (hyper)globalization.

-Incentive reasons: Higher rates of taxation reduce labor supply and effort provision.

-Prospect of upward mobility (P.O.U.M.).

-Unequal turnout and political participation: the rich participate more (not only by voting).

-Ideological shift (persistent belief in “trickle down” economics) and cultural reasons (believe in “incentives” and “merit”, preferences for the extremes).

-In some cases, a voting system may eliminate the option preferred by the MedianVoter if there are more than two relevant alternatives (France 2002?)

-Capture, lobbying, campaign contributions, corruption (more affordable for the rich).

-A combination of electoral and ideological polarization, and institutions that are slow to change or evolve, and which reduce the accountability of oficials to the majority (“gerrymandering” in the US, non-proportional electoral systems).

-Agenda-setting and mobilization of non-distributive agendas by the rich (strategic political supply, eg plutocratic populism).

I challenged them to complement or correct the list, not necessarily on the spot in class, but as food for thought for their hopefully productive lives as social science students and graduates.

(Class slides available upon request)

Public ownership or regulatory reforms

I started doing research on the ownership and regulation of network utilities in the early 1990s. Then in 1995 I went to the European University Institute to do my PhD and in 2000 I defended my thesis on “Privatized Utilities: Regulatory Reform and Corporate Control,” which you can read here if you are interested. After that, I spent two years and a half in the Regulation Initiative of the London Business School.

I see that the debate around these issues has not lost interest, although today there are new issues like climate change. A key topic today, like then, is whether the nature of ownership (public or private) is crucial to obtain good social results, or these can be achieved with regulation, one that can coexist with several ownership models.

Since the XIXth century until today, there has been a lot of diversity in the ownership structure of network utilities over the world. Public intervention in these industries, given the presence of naturally monopolistic segments, is widely accepted. Several authors in the economics literature have addressed the comparative advantages and disadvantages of private regulated network utilities vs publicly owned ones. The debate is about how best to correct or alleviate a market failure (natural monopoly) or achieve other social objetives (such as universal access), while at the same time securing necessary investments and providing incentives for efficient operation.

Laffont & Tirole (in their classic 1993 book on regulation, ch. 17) criticized the conventional wisdom at the time about the advantages and disadvantages of public vs private regulated ownership. They argued that the disadvantages of i) absence of capital market monitoring, ii) soft budget constraints, iii) risk of expropriation of investments, iv) lack of precise objectives and v) presence of lobbying,  are not universal in, or exclusive of, full public ownership. Similarly, the advantages of i) consideration of social welfare objectives and ii) centralized control, can be attained with appropriate contracts or regulation keeping private ownership.

Instead, they proposed to focus the discussion in one particular trade-off that arises from asymmetric information and incomplete contracts. Namely, on the one hand private regulated firms suffer from the conflict of interest between shareholders and regulators. For instance, each principal fails to internalize the effect of contracting on the other principal and provides socially too few incentives for the firm’s insiders. On the other hand, the managers of a private regulated firm invest more in noncontractible investments because they are more likely to benefit from such investments. Public Enterprise managers are concerned that they will be forced to redeploy their investments to serve social goals such as containing unemployment, limiting exports, or promoting regional development. The authors concluded that “taken together, these two insights have ambiguous implications for the relative cost efficiency of the public and private sectors; theory alone is thus unlikely to be conclusive in this respect.”

David Newbery (1999), in another important book, surveyed the history of network utilities in several regions of the world, and concluded that there is not much difference in terms of performance between a publicly owned monopolistic utility and a privately owned regulated monopolistic utility. 

Similarly to Laffont and Tirole (1993), Newbery (1999) pointed out that both private and public sector owners delegate operations in a board and a managerial team, which enjoy a degree of discretion. Government intervention is generally less costly under public ownership, but a promise not to intervene may be more credible under private production and may have positive incentive effects. But achieving this credibility is not straightforward: “The real case for privatization  must be that it is easier to sustain eficient pricing under private ownership in the face of political and populist pressures, and that privatization will generate additional efficiency gains.”

The differences in performance may come more from changes in the industrial structure, especially when some segments of the value chain can be opened up to competition: “Privatizing public utilities is primarily about ownership rather than control, since utilities can face remarkabky similar regulation under public or private ownership. Liberalization, in contrast, subjects utilities to market forces; it can induce more dramatic changes in performance than privatization alone.”

Tirole (2016) in his post-Nobel prize book on “The Economics of the Common Good” goes beyond his statements in Laffont and Tirole (1993) to argue that ”the conception of the State has changed,” from one of Producer of goods and services through public corporations, to a modern one focused on fixing the rules of the game and correcting market failures. Modern public finance textbooks reflect this evolution. Early editions of these textbooks or handbooks had chapters on “pricing in public enterprises,” which have now become chapters on natural monopoly pricing, admitting that regulated firms may be owned by private investors. 

Private firms in regulated sectors may deliver positive social outcomes, but only if some conditions are in place, mainly regarding adequate regulation. But beyond the objective empirical evidence, there has been a “backlash” in the public opinion of many countries. The late historian Tony Judt, in his celebrated last book “Ill Fares the Land” captures the discontent with privatization also in Britain when he criticizes the business oriented mentality of the new operating companies. Although countries like Chile, the UK or Spain were among the ones that privatized more firms in the 1990s, three decades later the controversy about the ownership of network utilities, and of water operating companies especially, has not disappeared. In an article in the Financial Times just yesterday, the prestigious columnist Martin Wolf echoed this controversy, and mentioned the interesting proposals made by an important expert, Dieter Helm, who has suggested radical regulatory reforms that are not mainly based on a focus on ownership.

Will God save the king?

I was shocked yesterday to hear the prestigious historian Simon Schama express in the BBC his optimism about the reign of Charles III. I have a higher opinion of the former than of the latter, and that enthusiasm improved (just a little bit) my opinion of the new King and worsened it of the scholar.

After watching parts of the coronation ceremony on TV, I tend to agree with Martin Kettle in The Guardian. I am not so sure that there is any opportunity for reform and modernisation without basically scrapping or at least radically downsizing the institution, but if any existed it has certainly been squandered. Kettle emphasizes the contradiction between the religious statements made in the ceremony and the fact that Britain is a diverse and multiethnic country –with probably a majority of atheists, like probably most European countries. 

The coronation of the new King can be criticized from other perspectives. Spending a big amount of public money on one of the richest families of the world is one of them. The Tax Justice Network issued a letter asking the new King to support its campaign for an elimination of the tax havens that populate the former British Empire, under the support of the British Government. Rachel Etter-Phoya has argued that “While Britain’s overseas aid has dwindled in recent years, unwinding the web of tax havens instead would help many governments fulfill the rights of their citizens. If we were to reverse the tax revenue losses caused by the UK spider’s web, there would be 36 million more people with access to basic sanitation, 18 million more people with access to basic drinking water, and almost seven million children could attend school for an extra year.” 

It is a good thing that the new monarch is concerned about climate change, and hopefully he can make a contribution to that cause, but that is no excuse to keep giving a political role to a medieval institution that is not based on merit or any democratic principle. That applies to any monarch. This one, in addition, is a symbol of an empire that was based on colonialism and slavery. Charles has expressed recently his willingness to cooperate in an investigation of his familily’s direct links with the slave trade. If he follows this to its inevitable conclusion, I don’t know what could be the moral justification for the continuation of the institution that he represents. 

In addition, in a world where people are becoming used to having a voice on everything and a vote on many things, it is increasingly awkward that electorates have to tolerate the lifestyles of the likes of Harry and Andrew Windsor.

On many issues, I am an anglophile, but on the monarchy, my view is that this is an extreme example of the many institutions that are remnants from a time of darkness and irrationality. There are certainly other examples. But I see them with the same discomfort that I feel with slavery, witch hunting and burning, or racial and gender discrimination.

The British Monarchy will try to find a role in post-Brexit times. But it was part of the narrative and the imperial mentality that made Brexit possible. But Brexit has failed. The British should extract all the logical implications and join all the others who want to live in a modern and secular world of equal rights and cooperation, where nationalist pre-democratic institutions like the monarchy are, at least, reduced to a symbolic and minimal role.

Why organizations fail. The case of FCB

The Spanish economist Luis Garicano, who had a short-lived political experience in the failed political party Ciudadanos, has an excellent academic article in the Journal of Economic Literature with the title “Why Organizations Fail.” The title is an analogy with the famous book “Why Nations Fail,” previously writen by Acemoglu and Robinson.

Certainly, not only nations fail, organizations also fail. It is common among economists to study market failure, but it was less common to study the failures of whole nations or organizations. Governments also fail, as communities do. Needless to say, all these mechanisms of resource allocation may also succeed. Good economists, like Garicano or Acemoglu, are good at identifying reasons for success and failure.

In his article on organizational failure, Garicano mentioned among others two usual reasons for it, namely shortcomings in the allocation of talent and mistakes in allocating resources among the short run and the  long run. Good organizations allocate well their scarce talent, and do a good job at attracting and retaining it at the relevant jobs. They also manage well short run problems, at the same time that they devote resources to innovation and to thinking about their future.

These two basic ideas have come to my mind recently on occasion of the decline of FC Barcelona, my soccer team, arguably the best team in the world between 2005 and 2015, the years of Leo Messi, Andrés Iniesta and others. The rise and fall of the club are very well described in the book by Simon Kuper about it. But this distinguished journalist left the story before it emerged that the club had been paying more than 7 milion euros to the vice-president of the committee in charge of allocating referees to games and to categories, and the subsequent PR campaign of the current President, Joan Laporta, to reject any responsibility and couter-attack with a populist campaign blaming rivals Real Madrid and the Franco regime (yes, that military dictatorship that finished almost 50 years ago).

Barça does a very bad job at allocating talent. The president is elected by the members and operates in a framework of no checks and balances. The current one lacks any management skills and any self-discipline. The club officials around Mr. Laporta are their friends or even relatives, and there is currently no professional structure of experts in organizational turnarounds. However, there is no shortage of experts in communication, starting with Laporta himself, who takes any problem, not as a management challenge, but as a communication challenge, not unlike Boris Johnson or Donald Trump.

The club not only has failed to prepare for the future in its good years, but is now obsessed with the past, blaming the Franco regime, and trying to revive the recent good cycle by trying to sign again an ageing Leo Messi. And it is basically giving up on the future, by paying for current signings with the revenues obtained by selling money-making assets.

This (and Garicano’s reasons for organizational failure) begs the question of what are the factors that facilitate organizational failure. In this case, the populism of a democratic club with no checks and balances plays in my view an important role. Barça is too important to fail, and like many top football clubs it will be bailed out before it disappears (football clubs do not disappear, as explained by Kuper and Szymanski in Soccernomics). A consequence of this is moral hazard in the behavior of club officials, as they don’t face the full consequences of their incompetence (or worse). Other clubs have similar characteristics, but for reasons that deserve further study, the case of my club is an extreme one. However, since the team will not disappear, we can always hope that another lucky shock is around the corner, in the form of another generation of great players.