The debate of 2015 (and beyond): what federalism?

The big debate of 2015 (and certainly beyond) should be and I believe will be (although perhaps not with these words) "what federalism?." That is, in front of enormous problems at a global scale and the insufficiency of the nation-state to solve them, and also in front of the populist identity movements that ignite local grievances, how to manage diversity, and how to build large democratic aggregates will be a major issue. Of course, there are different ways to do this, and the solutions will differ across the continents. There are different solutions to square the formula of divided power, degrees of consociativism and malapportionment in the represenation of hypothetical or real territorial chambers. It is not easy to respect asymmetries, without creating privileges (in Spain, the UK, Europe, America, Africa, the Middle East, Ukraine...), but it can be done, and it is being done. How to avoid the slippery slope of local and regional powers that opportunistically use their resources to promote secession is a big problem. But we must solve problems at its optimal level. We must decide things democratically, respecting the laws of time and space. That is, not everything can be decided at the same time (because there are time-inconsistency or commitment problems) and not everything can be decided at the same level of spatial aggregation: I'm sorry for Catalan secessionists, but climate change will not be fixed with an independent Catalonia. I insist: issues must be governed at its optimal level. Some are optimally decided at the household level, others at the building level. Many issues can be managed at the municipal level, while others at larger levels of aggregation. Increasingly, issues have a continental or global dimension. And I am not the first to believe that one day this optimal level will become, for some issues, universal, that is, encompassing outer space. And you don’t even need to incorporate alien creatures to the argument (with them, Star Trek already had a role for federations: this is a place where someone has gone before). Happy new year.

Miami, December 17th 2014

By chance I spent some hours in Miami airport with my family (in transit to Chile) just the day that Presidents Obama and Castro simultaneously announced an agreement to re-establish diplomatic relations, release prisoners and start a new era of dialogue. When I was at the airport, I understood that something was going on, but I failed to appreciate the historical dimension of the event. Local people watched TV screens, and airport workers from Cuban origin (most of them?) talked about the topic with a mixture of doubt and excitement. Subsequent polls have shown the division in the Cuban exiles in Florida about the agreement. In my modest opinion, there are reasons to be cautiously happy about it. Although I consider myself a left wing European, I believe that the European left has not done enough to criticize the Castro regime. No degree of equality justifies the lack of respect of human rights in the island. The left should be about social justice and freedom, both of them together. Today justice and freedom require action at the regional, continental and even global level, for which it does not make any sense to keep walls between peoples. The Berlin Wall fell 25 years ago, and it is about time that the Caribbean wall falls as well. Obama is right that the embargo has failed and has been counter productive. Perhaps trade and the Internet will do more for freedom than the embargo. I also hope that the Americans do not just wish to buy a Caribbean Island with their money, but that they act in coordination with other American countries to promote freedom and welfare in Cuba and elsewhere, and also that they facilitate a peaceful democratic transition that makes it possible to perpetuate the many good aspects of the Cuban society.

A History Manifesto against the short run

I studied history before studying economics, and I remain interested in history. This History Manifesto is a summary of the great trends of this discipline in the last 50 years, and how it was too immersed in the short run for too long. The authors argue that we should pay much more attention to the long run, so as to appreciate the possibilities of broader perspectives and of a reformist contribution by historians to society. The book begins like this: "A spectre is haunting our time: the spectre of the short term. We live in a moment of accelerating crisis that is characterised by the shortage of long-term thinking. Even as rising sea-levels threaten low-lying communities and coastal regions, the world’s cities stockpile waste, and human actions poison the oceans, earth, and groundwater for future generations. We face rising economic inequality within nations even as inequalities between countries abate while international hierarchies revert to conditions not seen since the late eighteenth century, when China last dominated the global economy. Where, we might ask, is safety, where is freedom? What place will our children call home? There is no public office of the long term that you can call for answers about who, if anyone, is preparing to respond to these epochal changes. Instead, almost every aspect of human life is plotted and judged, packaged and paid for, on time-scales of a few months or years. There are few opportunities to shake those projects loose from their short-term moorings. It can hardly seem worth while to raise questions of the long term at all." The weakest part of the book is an excessive corporatist defence of historians, that contradicts the arguments of the book against too much expert specialization and scientific niches, as argued in this review. But before it's too late, perhaps you should also read this manifesto against presentism (it can be downloaded for free).

The History Manifesto is a call to arms to historians and everyone interested in the role of history in contemporary society. Leading historians David Armitage and Jo Guldi identify a recent shift back to longer-term narratives, following many decades of increasing specialization, which they argue is vital for the future of historical scholarship and how it is communicated. This provocative and thoughtful book makes an important intervention in the debate about the role of history and the humanities in a digital age. It will provoke discussion among policymakers, activists and entrepreneurs as well as ordinary listeners, viewers, readers, students and teachers. - See more at: http://historymanifesto.cambridge.org/#sthash.xQTq20se.dpuf

How should historians speak truth to power - and why does it matter? Why is five hundred years better than five months or five years as a planning horizon? And why is history - especially long-term history - so essential to understanding the multiple pasts which gave rise to our conflicted present? The History Manifesto is a call to arms to historians and everyone interested in the role of history in contemporary society. Leading historians David Armitage and Jo Guldi identify a recent shift back to longer-term narratives, following many decades of increasing specialization, which they argue is vital for the future of historical scholarship and how it is communicated. This provocative and thoughtful book makes an important intervention in the debate about the role of history and the humanities in a digital age. It will provoke discussion among policymakers, activists and entrepreneurs as well as ordinary listeners, viewers, readers, students and teachers. - See more at: http://historymanifesto.cambridge.org/#sthash.xQTq20se.dpuf

How should historians speak truth to power - and why does it matter? Why is five hundred years better than five months or five years as a planning horizon? And why is history - especially long-term history - so essential to understanding the multiple pasts which gave rise to our conflicted present? The History Manifesto is a call to arms to historians and everyone interested in the role of history in contemporary society. Leading historians David Armitage and Jo Guldi identify a recent shift back to longer-term narratives, following many decades of increasing specialization, which they argue is vital for the future of historical scholarship and how it is communicated. This provocative and thoughtful book makes an important intervention in the debate about the role of history and the humanities in a digital age. It will provoke discussion among policymakers, activists and entrepreneurs as well as ordinary listeners, viewers, readers, students and teachers. - See more at: http://historymanifesto.cambridge.org/#sthash.xQTq20se.dpuf

Jean Tirole: "I'm a big federalist"

These words came after a question by the BBC journalist Zeinab Badawi to the 2014 Economics Nobel Prize asking whether it was true that Tirole was a federalist in favor of a European state. It was in the context of the "Nobel Minds debate" in BBC World during the past week-end. Badawi's question in turn came after two questions by young ladies, the first of one by Maria asking whether it would be easier to regulate small terriotries like Catalonia and Scotland instead of Spain and the UK. Maria spoke with a Catalan accent (I know about this particular accent). Tirole's answer perhaps came as a surprise to Maria: "I'm a big federalist," reminding the audience that the objects that must be regulated are more and more international in nature: banks are multinational. Google, climate chnage, all have to be regulated at the global or at least European level. Tirole emphasized that he tries to be politically neutral, but he also left clear that he has little patience with the "horrible" policies of extreme parties. The euro zone institutions are weak, said Tirole, unlike the US: "I would like to have a common budget and a common law." Hopefully that will come, he argued, although "My ideas seem to be against the current because we don’t learn the lessons of history." The French economist defended the idea of a strong EU budget and a EU federal government that operates with higher transfers of sovereignty from the member states and that looks for coordinated solutions to the current economic crisis. It is therefore not only Thomas Piketty and Branko Milanovic who discuss federalism in their work among the economists. Now it will also be this year's Nobel prize.

The Coase theorem meets global federalism

I just explained to my MAREB students the Coase theorem yesterday, and today I read this post by Branko Milanovic. I told my students that the theorem (if property rights are complete and transaction costs are zero, the parties to collective problems reach efficient solutions) had been used to justify massive privatization, and other policies such as trading in pollution permits. Of course, the theorem is a theorem and not a description of reality. Like the two welfare theorems, the Coase theorem gives the false impression that efficiency and distribution can be easily separated, but they are not. Plutocracies create inefficiencies. The particular distribution of property rights in Russia is linked to the failure of democracy, and the failure of democracy makes it difficult to develop a modern well functioning economy. The expectation, as Milanovic argues, was that the oligarchs would demand the protection of property rights through the rule of law, as the rich did in the US in the past, but the oligarchs moved their resources to other countries (where no one asks them about the origin of their wealth), because that is easy to do with globalization, so they do not need to demand the protection of property rights in Russia. It is utopian to think about a democratic global government that regulates global capitalism and redistributes at a global scale, but it was also utopian to think about a Europe without borders in 1945. Markets need rules and redistribution, and today markets are global, so rules and redistribution should increasingly work at the global level. In 1945 rules to constrain capitalism were mostly a national work in progress, Europe was a dream and global federalism was not even a proposition. Today nation states have done most of their work and are increasingly obsolete, Europe is a work in progress and global federalism has moved from nothing to a dream. That's some progress.

Political Bubbles

I am reading the book "Political Bubbles" by three American political scientists, about the failure of the political system in the US that led to the financial crisis of 2008 and that failed to react quickly and deeply enough to it afterwards. The authors explain how economic market failure was accompanied by political failure to a large scale. This failure was the result of what they call the three "i's": institutions, interests and ideologies. Interests are those of wealthy members of the financial community that spend resources in trying and sometimes achieving to capture the political system. Ideologies are those of unfettered free markets, but also those of egalitarians that content themselves with the use of imperfect instruments. That is the case when redistributions is pursued by selling houses, in a coincidence of interests with those members of the financial community and with those conservatives that work to create an "ownership society." Interests and ideologies can work against the interests of the majority when institutions favour gridlock and the status quo. Some degree of commitment to past policies is desirable to promote stability, for example when there are valuable sunk investments. But sometimes flexibility and adaptation is needed, especially when social disasters are growing in likelihood. Something similar may be happening today with climate change. The three "i's" explain why the popular response to the crisis has been so moderate and why outrage has been unable to transform itself into a wide movement for deep reforms. They contribute to explain why in the face of the absolute disaster of free market policies, Barack Obama still only won by a small majority against John McCain in 2008. Or why the Occupy Wall Street movement only lasted briefly and had a small impact on mainstream politics.

Evolution and the technology of nationalist movements

During 99% of the evolution of the human species, our ancestors were hunter gatherers fighting for survival in the African savannah. In that technological and environmental context, cooperation among members of the same group and distrust of members of outside groups was an optimal adaptive strategy. As a result, the human mind developed preferences that reinforced the own identity by opposition to other identities. These preferences have survived to our days, and can be seen in nationalist movements and in the emotions and sometimes dangerous tendencies of sports fans. The problem is that today the environmental and technological context have completely changed, and therefore a sharp distinction between "us" and "them" has become maladaptive to the majority of humans. We should cooperate more, at a larger scale. Of course, it is still useful to some people, for example those that benefit from the weapons of mass distraction that are nationalist movements, in Europe, Israel, Asia and many other places. Elites benefit from the  mobilization of ethnic and religious feelings, as was predicted by John E. Roemer in an article where he explained why the poor do not expropriate the rich in democracies (because the rich are good at keeping the poor busy with identity clashes). Then the relatively poor (a good fraction of the majority) provide the labour factor in nationalist movements in the form of demonstrators and voters, and the elites, usually with the massive opportunist use of the resources and propaganda machines of rich regional governments (as in Quebec in the 1980s, or Scotland and Catalonia today), provide the capital. Of course, human capital also helps, especially where the labour factor is augmented by the power accumulated by well trained middle classes which, although being a minority (perhaps a cohesive and culturally homogeneous 30%), thanks to the structure of electoral laws, civil society and local institutions, may control the key nodes of society. Then, having a society mobilized on nationalism, but paralyzed on everything else, is perfectly possible. Political movements are the result of ideologies (beliefs), institutions and interests. But evolutionary forces and technology should not be underestimated.

Hope in the struggle against prejudice

In my previous post I argued that one of the biggest obstacles in the struggle against prejudice is that most of us are not aware of what is going on in our brains. Our cognitive functions believe that they are in control, and we are not aware that most of our decisions are taken by our affective and automatic functions. Empirical social psychologists have difficulties in ascertaining what works and what does not work in policy efforts to reduce prejudice and stereotypes. The history of countries and communities that have descended from prejudice to violence or even genocide is not encouraging. But there are also stories that testify of the victory of tolerance and solidarity. In Canada for example, after decades of political debate dominated by nationalism and intolerance between communities in Quebec, today the province is dominated by federalists that have promoted inclusive policies that accept diversity and cooperative solutions. In another field, I am reading the book by David Winner on the history of Dutch soccer, "The Neurotic Genius of Dutch Soccer". One of the most interesting aspects of this essay, and to me one of the most unknown, is how after the defeat of the Dutch against the German in the final of the World Cup in 1974, The Netherlands were increasingly dominated by a biased interpretation of history that exaggerated the acrimony between Dutch and German, starting from the occupation in the Second World War and finishing with the fact that Germany had won that World Cup final in an unfair way. However, in the late 1990s many Dutch rectified that point of view, and many of them were able to practice self-criticism and realize that the Germans are also able to play excellent football, and that their players had no responsibility at all in the Holocaust, a responsibility that many Germans of the 1940s share with many Dutch, since there was a high level of collaborationism in The Netherlands, where the Jewish community was one of those that most suffered in those horrible times.

We are not aware

Colin Camerer, in an article in 2005 about Neuroeconomics, argues that neuroscientific evidence on our behaviour can be summarized along two dimensions. In one dimension, brain functions can be either controlled or automatic (similar to what Kahneman calls slow and fast thinking). In another dimension, mental functions can be affective or cognitive. Economics for most of its history has dealt with controlled, cognitive processes, neglecting the other possibilities, but it is slowly starting to investigate them. Camerer also argues that most of the time, our controlled cognitive system is not aware of what happens when we employ automatic or affective ways of "thinking". Since the affective system is a dominant one, that means that humans most of the time do not know themselves. One of the examples he gives is the tendency of people not to admit that they have prejudices or stereotypes. That can be recognized every day in societies dominated by identity conflicts. Sadly, in Catalonia for example it is increasingly easy to find someone who says that Catalans are more open-minded that the rest of Spaniards, and at the same time do not admit that it is almost impossible that that is a rational statement. Some people also claim that the pro-independence movement is not nationalistic, but it is rational and purely based on... who knows (sometimes the reasoning is not easy to follow). Of course affect is not always a bad thing. Thanks to affect, we tend to reject unfair offers, which makes elites propose fair options for fear of creating conflicts. Only an autistic child (not even autistic adults) would play as rationally as predicted by game theory in this kind of interactions (called the ultimatum game).

Catalonia in a European frame

LSE's blog Europp has published an article of mine that starts like this "The current conflict in Spain over the constitutional future of Catalonia cannot be resolved without reference to our European reality. The leaders of the Catalan and Spanish governments are essentially fighting over something which no longer exists in Europe: national sovereignty. The controversy over how to democratically decide the future of Catalonia illustrates the difficulties of engaging in this debate without recognising the world of complex and overlapping sovereignty that now exists, and which has to some extent left the nation state behind. Antoni Zabalza, Professor of Economics at Valencia University, argued in an article in the Spanish newspaper El Pais on 21 November that projecting the data of participants in the ‘consultation’ of 9 November (where everybody who wanted to vote could do it) on a legal referendum with high turnout, the yes vote would reach 44 per cent of the electorate. The figure is similar to what could be projected from the vote of pro-independence parties in past regional elections. The question is whether these sources of information should be complemented with an official, decisive referendum on independence like the one that took place in Scotland. The Economist’s editorial proposing such a referendum, in their words to defeat independence in Catalonia, gives me the opportunity to express my opinion once more about this issue." The rest of the article can be read here.

Re-reading Beinhocker

The book by Beinhocker "The Origin of Wealth" parallels Darwin's "The Origin of Species" and presents the foundations of a complex evolutionary approach to economics. I read it some time ago and I re-read it now to talk about complexity and evolution in soccer for my class on soccer and economics in the Study Abroad programme in Barcelona. The book shows that combining the prisoner’s dilemma with the “game of life” one can see patterns in the evolution of successful strategies (Lindgren, 1997). In the Game of life cells that develop successful strategies (the ones that obtain a higher payoff when playing with others the prisoner's dilemma) occupy the space of less successful cells after playing against them and their neighbours. Each cell in a grid is randomly endowed with one of the strategies in the prisoner’s dilemma repeated game. 

In addition, random mutations (small changes in the strategies) and errors are introduced. The cell grid then experiences changes in patterns of more or less cooperative strategies, depending on initial conditions and proportion of errors and mutations.

There are lessons derived from analyzing many rounds of play:

–There is no stable equilibrium.

–There is no single successful strategy (who is the winner? what is the best strategy? are 
non-sensical questions).

–Highly successful strategies today might be real losers in a hundred years,

–and the most successful strategies in a century might be ones that were only modestly  
successful today, or don’t even exist yet.

–Some strategies do not even survive, and others are the “cockroaches” of the game: 
simple  strategies like Tit for tat, which never dominated, but seemed somehow to survive 
and make a living, no matter what else was going on.

–Strategies that use longer memories achieve higher payoffs.

–Patterns of punctuated equilibrium: long periods of stability followed by sudden change.
 The book then goes on to apply these insights to business and organization strategy, and the 
main lesson is that what is important is not to learn to become successful, but to learn to be 
good evolvers.

Catalonia: Let them vote on federalism

The Economist's editorial proposing a referendum to defeat independence in Catalonia gives me the opportunity to express my opinion once more on this issue.
A referendum on independence with a clear question and clear rules has advantages, like certainly the opportunity of defeating secessionism, an option I think is bad for Catalonia, Spain and Europe. And it is a democratic way of choosing. But it is not the only way to do so.
An independence referendum also has disadvantages, which at least include the following:
1) A plebiscitarian democracy with two extreme options gives easily the stage to groups that practice intolerance and attitudes close to the mob rule, at least in social networks (of which we already had some examples in Catalonia).
2) Cascade effects, both internal and external: showing the way for new referenda on the territories of Catalonia where a majority think they belong to Spain, and on other European regions where they do not want to be less than the Scots or the Catalans. This creates economic and political uncertainty and instability. It could finish with the dream of a united Europe in the long run, and trigger the final crisis of the euro in the short run.
3) Potential disenfranchisement of the minority that loses the referendum. This risk is especially serious in case of a YES victory. According to all surveys and electoral evidence, the anti-secessionist are disproportianetly Spanish speaking, working class and powerless (they are scarcely seen in the civil society groups that dominate political debate).
4) Risk of increasing the social division in Catalonia. Many of us have experienced increasing distance with some friends. Some political parties have already divided because of this issue. With a legal referendum with two extreme options this can clearly get even worse, in my view.
5) Lack of expression of the majority. Surveys and electoral evidence show that between the status quo and independence, most voters support a "third way" (to me, it is the first and only way) along the lines of a federal administrative organization. On what basis this majority should be deprived of seeing their option in the ballot paper? Of course, that would make the question less clear, which is the reason why I prefer a referendum with two options: federalism and the status quo.
6) Lack of incentives for an agreement: during the referendum campaign, all the energies would be focused on winning the referendum, instead of trying to find an agreement by all means. In Catalonia and Spain we share enough common values to be able to reach this agreement, which would benefit everybody according to most external observers. But there are no incentives to reach it.
7) An independence referendum incurs all sorts of commitment problems, as I argued elsewhere.
8) At a practical level, a criterion used by The Economist, there would be serious difficulties of a coherent No campaign in Catalonia, much more serious than in Scotland. The anti-secessionists include democratic federalists like me, extreme fascists, and many people in between. Why should I be pushed to campaign with the Popular Party, a party that has yet to condemn the Franco dictatorship in Spain?
9) A clear question does not imply a clear option: what does it mean independence in the XXI century? The victory of the yes vote would trigger negotiations: the final agrrement would be different from the initial position of the secessionists. What happens then if a majority does not like the agreement: should we have another referendum then?
10) Externalities: The Economist already made this argument, it seems they have forgotten it. 
A united Europe will not be built one independence referendum at a time. An independence referendum makes for a great story for journalists and it would certainly be a victory for the secession movement. They have celebrated with joy the editorial in The Economist, forgetting to mention that the same editorial says that independence would be disastrous and that the best option would be a federal reform.
When I say all these things I am answered with partial arguments, like "OK, but the independence referendum is necessary because it is the only option to defeat the secessionists". I would appreciate some answer that considers seriously all my arguments, or at least a fraction of them. There are phenomena that have multiple causes and phenomena that have multiple consequences. A referendum on independence, no matter how clear it is, would have multiple consequences, and not all of them are desirable.
Unlike the UK, Spain has a written Constitution, and it had a 40 year dictatorship in the middle of the XX Century. Unlike Canada, Spain belongs to the European Union and the Euro zone. This introduces binding constraints that are often forgotten by well intentioned agents in this debate.
I am not making a prediction that an independence referendum will never take place. I am not an astrologist. Perhaps there will be an independence referendum in Catalonia at some point in time against my wishes. If that is legal and it has clear rules, I will vote no to independence. But I would prefer to vote yes to federalism, and I think that The Economist would have been more coherent to propose a referendum in favour of the option that it deems better for the Catalans. British democrats like the Labour Party or the Liberal Democrats do not show any sympathy for a referendum on EU membership in the UK in 2017, as demanded by the UKIP and the conservative euro-sceptics. French democrats understandably do not show any sympathy for the referendum proposed by Marine Le Pen (I presume with a very clear question) about membership of France in the EU, a very democratic proposal. A referendum on a better federalism should be based on a previous agreement, accepted by the European Union, and make progress towards a better federal architecture for Catalonia, Spain and Europe. The current Spanish Constitution was based on a large agreement, and supported by an hegemonic majority of the Catalan and Spanish populations: a new agreement should have similar support. Otherwise, reforming the status quo would not be legitimate.

The federal debate becomes more and more international

The Japanese press pays attention to what insignificant Catalan academics have to say. The journalist tells me this: "I'm attaching a copy of the article as it appeared in the Saturday 8th morning edition of the Hokkaido Shimbun Press newspaper.
You'll see that we also spoke with Dr Costa-i-Font of LSE to hear his opinion on the "consultation".The large headline in the middle states "'Independence Vote' in Catalonia Tomorrow—The expert's opinion", and the large header on the left hand side summarising your viewpoint reads "What is necessary is a debate on decentralisation". The summary of Dr Costa-i-Font's section reads "The view of the people must be made known in order to find a solution".