Thursday, August 31, 2017

Multi-club ownership, efficiency and collusion

Red Bull owning soccer teams in Germany, Austria and New York, or Manchester City's parent company owning teams in New York, Australia and now Spain (Girona FC) are just examples of a new trend in global soccer: Multi-Club Ownership or MCO. The implications of this are different depending on whether it implies horizontal integration or vertical integration. If it is a case of vertical integration it may imply better coordination among different segments at different levels of a value chain (for example, recruiting and training players at young ages and then promoting them when they mature, and similarly with managers), which is efficient and reduces waste. But if it is a case of horizontal integration, then it may raise market power concerns and concerns in terms of authenticity of the competition. For example, it is not implausible that Red Bull Salzburg has to play against Red Bull Leipzig in the European competitions, and similarly for Manchester City and Girona FC in the future.
Simon Chadwick, an expert, argues in The Guardian that “How do you scout around the world as quickly and cheaply as possible? Rather than having to maintain a scout network where you can always miss out, you have a franchise where you save both on intelligence and scouting acquisition costs."
“My personal view is that multi-club ownership is a very interesting way of leveraging intellectual property,” says Ben Marlow, the head of football at 21st Club, a consultancy that advises potential investors in the game. “Yes, it gives them a geographical advantage in recruitment by having a presence in a market. But it also helps clubs breed economies of scale, it allows clubs to share best practice.”
Other problems of potential collusion arise when player or manager agents are involved. For example, the purchase of FC Girona by Manchester City has also involved the brother and agent of Manchester City's manager, Pep Guardiola. Pere, Pep's brother, will be the co-owner of Girona FC, but he is also the agent of many players and the agent of his brother. Will his decisions be guided by the best interests of Girona's fans or by his interest to promote players of whom he is the agent? Pere Guardiola is also associated with Mediapro, a sports media company investigated by its links with the FIFA corruption scandal. Global soccer is great, but it has some dark corners.

Wednesday, August 30, 2017

Worker democracy

A part of the left in countries with sovereignist movements has supported the idea of self-determination referendums as an example of radical democracy. This is surprising, as radical democracy has a very different tradition in labour movements and the left. Self-determination referendums are the preferred tool of populists and autocrats, and are the ideal way to divide the working class and promote an organization of the world based on nations and identities instead of based on the universal values of egalitarianism and common prosperity.
The true good tradition of radical democracy in the left is the ideal of worker democracy in the firm. The fall of the communist systems did nothing to erode the good properties of worker participation in the ownership and control of firms, because communist systems were not systems of worker participation but of state control. Prestigious economists such as John Roemer and Samuel Bowles and their co-authors have explained the positive properties of worker democracy in the firm both from the point of view of equity and the point of view of efficiency. There are positive productivity effects through enhanced individual and team incentives and through dispersed innovation. And of course there are positive egalitarian effects as the value of production is not asymmetrically captured by the owners of capital, and therefore the tendency of capitalism to concentrate income and political power in the wealthy is restrained. Fair structures of voice and decision-making also have an influence on more altruistic preferences, which contributes to internalizing externalities and solving social problems such as corruption. Since both efficiency and equity can improve, there is an improvement of the terms of the equity-efficiency trade-off to the extent that any trade-off remains. Improving worker democracy is a pre-distribution step that reinforces redistributive mechanisms in welfare states. Worker democracy and better institutionalized redistribution through a better federal system may make flexicurity mechanisms more acceptable for unions. In addition, a significant increase in the share of companies that practice worker democracy may be part of a more diverse economic ecosystem. Worker participation already exists in a large part of the economy. In some countries' large enterprises, such as in Germany, it is compulsory, which does not stop these societies from being among the most prosperous and efficient in the world. A good federal system of a multilevel democracy starts in the firm. That is what a radical democracy means for workers.

Monday, August 28, 2017

A referendum about an incomplete contract?

The economist and Nobel Prize winner Oliver Hart has rightly said in a Spanish newspaper that a good referendum must be preceded by a contract. In the short space of a newspaper interview, he only says that such contract should clarify the time before another similar referendum should take place. The objective would be to avoid the instability created by the fact that the voters may realize after the vote that the terms of what was being voted were uncertain. Oliver Hart, like almost all economists, was against Brexit and probably he was thinking of this referendum, after which the United Kingdom has entered one of the most uncertain periods of its history. But of course surely Hart would agree that many more issues should be covered in a referendum contract, like the exact terms of the policies and institutions that would be implemented in case of each possible referendum outcome. This is of course very difficult, although there are precedents in history, especially when referendums were preceded by wide-ranging agreements among all relevant stakeholders. This happened for example in the referendum after the Good Friday Agreement in Ireland. Or it happened in the Constitution referendum in Spain in 1978. I could not vote in those years, but I remember that all voters received the long text of the agreed Constitution at home (in my family, the copy we received could be read in Spanish from one side and in Catalan from the other side). However, when the referendum precedes a negotiation, the terms of the vote are totally unclear, which facilitates the work of demagogues and opportunists, as it happened with the Brexit referendum. It would have been interesting to dig deeper into the thoughts of Oliver Hart in this case, because this economist has promoted the idea of incomplete contracts, which preside those relationships where it is impossible (or too costly) to foresee all possible contingencies. Clearly, in many cases, it is not at all clear what will happen. In the economics of the firm, which is where Hart and others have applied the idea of incomplete contracts, the allocation of property rights (understood basically as control rights, because property gives the right to decide in all those cases that are not covered by a contract) is crucial to determine outcomes when contracts are incomplete. That is why citizens should be vigilant when opportunistic governments (democratic or autocratic, national or regional), political parties or international powers promote referendums. They will try (especially if the referendum has no legal framework, like in Crimea) to manipulate the agenda, the date, the question and everything they can because they know that the relationship between them and the voters is presided by a very incomplete contract. The control rights are crucial to try to influence the outcome of the vote, and the management of the events before and after it. Perhaps I should add this insight if I (hopefully with the help of someone else) ever come to write an English expansion of something I wrote in Spanish about social choice after the Brexit referendum. I infer from his work on firms that Oliver Hart knows that, in the presence of incomplete contracts, the moral attittudes of political leaders are as important as the vote of citizens.

Tuesday, August 22, 2017

De iure and de facto sovereignty: the Brexit case

According to the existing treaties and legal rules, the United Kingdom is a sovereign state that can decide its integration or separation from other organizations such as the European Union. Accordingly, the British Parliament decided to call a referendum more than one year ago to decide whether to remain or to leave the EU. The result of that referendum is well known: 52% voted to leave and 48% voted to remain. Those in favour of the Brexit option, such as Nigel Farage, said that the day after the referendum would be the Independence Day of the UK. However, more than one year after the referendum, the British have learned that it is not so easy to leave the EU. First, the operation requires a negotiation to establish the terms of the divorce. And, second, the British, even those in favor of leaving, still want to have some relationship with the other Europeans. It s just that the citizens were promised that they could pick those aspects of the relationship that they like and drop those that they do not like. They were promised a free lunch. The current British government seems completely unable to tell the truth to the voters, because it is intimidated by a tabloid press and a radical part of the electorate. Objective observers' only discussion now is whether a second referendum will be necessary to restablish the truth, or whether it is better just to leave things in a permanent transition, being part of the single market and accepting basically all the (judicial and financial) obligations that go with that, but without a seat in the table where the decisions are being made. It seems that the United Kingdom, a nuclear power and a former global empire, are much less sovereign that they expected to be. This is the story of the Brexit delusion.

Monday, August 21, 2017

Politics and terror

The first priority when a terrorist attack takes place in your city is to mourn the victims. But of course big terrorist attacks have political implications which in a democracy must be analyzed. The Guardian has today a very interesting editorial about the events in Barcelona last week. One paradox the British newspaper has paid attention to is that "On Sunday morning the king and queen led the mourners at a service in La Sagrada Familia, Barcelona’s cathedral, which, perhaps paradoxically in the circumstances, was conceived by Antoni Gaudí as a paeon to faith and nationalism." The service was exclusively Catholic: I wonder if a majority or perhaps any of the victims was a Catholic. The Guardian also says that "behind the solidarity, Spain’s national cohesion faces more stresses than in most European countries. At least eight of the terrorists appear to have grown up in one small town, Ripoll. Their horrified families are blaming Abdelbaki Es Satty, the imam of one of the town’s mosques, for radicalising their sons. Yet this is a region that is uncomfortably familiar with conflicts of identity. Catalonia’s president, Carles Puigdemont, attended the Sunday service with the king and queen, but it was a rare joint appearance with the monarchs for the republican politician, who is the architect of the unofficial referendum on independence that is scheduled to take place in less than six weeks’ time. Madrid continues to insist the plebiscite is illegal and that it will do everything it can to stop it happening. The last Catalan president who organised a similar referendum has been banned from public office for two years." Meanwhile the English edition of El País says that "An attack of this magnitude should be a wake up call for Catalan politicians, including the regional government, parliament and pro-independence movements, which have made the independence fantasy the sole issue on Catalonia’s political agenda over the last few years. It’s time to ditch the democratic nonsense, the flagrant law-breaking, the games, the tactics and political opportunism. It’s time that those governing us start working for our real interests. The fight against terrorism requires complete coordination and a concerted effort among the various authorities and security forces. And this kind of collaboration can only be achieved if there is absolute trust between the various layers of government and state bodies. So we appeal to the Catalan regional government and politicians in the region to work on a real agenda that will address the real problems affecting the people of Catalonia." I couldn't agree more.

Saturday, August 19, 2017

Come to Barcelona soon

When I was a kid, I used to live very close to the bull ring in Barcelona. From the spring to September there were bull fights which I occasionally attended. Most of the time I didn't go, but our passtime was to watch the tourists (and their funny clothes, or in some cases almost lack of them, to be honest) that parked their coaches in our street. In those years, before the Olympic Games of 1992, we only saw tourists on Sundays because they came for the day to the city to the bull fight from the Costa Brava. In Barcelona, there were not many hotels back then. Another way to see tourists was to go to Montserrat (a mountain near Barcelona) in summer, where visitors from the beaches also came for the day. Since the Olympic Games tourists now stay in Barcelona. They have many hotels and now more or less legal tourist appartments. That does not mean that Barcelona has not been a city of visitors. Most of our touristic assets were here before the Olympic Games, like the Gaudí buildings, the nice weather and... yes, the immortal Rambla where a horrible terrorist attack took place on Thursday. That is the pedestrian street, itself a monument to diversity and freedom, which had seen George Orwell, Pablo Picasso, Federico García Lorca, Gabriel García Márquez and many others walking up and down the avenue. Some of our occasional visitors come for a few days or for an academic course and then decide to stay and join us as citizens of Barcelona. And some of them become partners of those that were here before, and even come to lead our associations, political parties or even municipalities. Only a couple of decisions separate a tourist from a local. All those of us who can organize anything know the power of the subject matter "Invitation to Barcelona" in an email. Because of this power (exerted by myself personally or others, we all know the trick) I have been able to spend time with people I admire in my profession, like Paul Levine, Jon Stern, Neil Rickman, Sam Bowles, Branko Milanovic, Glenn Woroch, Maitreesh Gattak, Antonio Estache, Massimo Florio, Eduardo Saavedra, Miguel A. Montoya, Jean Tirole and others. And I am also happy to having spent time with other visitors with whom I don't have professional links. In the last ten to fifteen years, I have had literally hundreds of foreign students in the Autonomous University of Barcelona and its associated courses. I expect to have more this academic course. Every time I start with a new group I feel a sense of excitement for getting in touch with individuals with such varied backgrounds, a sense of excitement that I only hope it is shared by them. All of them will enjoy our street life and be part of us. This is an open city, this is everybody's city. Among the casualties of Thursday's attack the official version says that there are more than thirty nationalities. That's surely wrong. If they followed the appeal of Barcelona, surely many of them as individuals were multinational, multilingual and multicultural. Therefore, it should be thirty times the number of nationalities inside each of them. It could have been any of us, but we are not afraid. To all of the visitors that have been here before and to all those that will join us for the first time, I say: please come soon.

Tuesday, August 15, 2017

"Diversity and Complexity," by Scott E. Page

The book by Scott E. Page "Diversity and Complexity" is a useful complement of the book written before by the same autor, "The Difference," offering definitions and taxonomies of diverse and complex systems.
In that previous book, Page argued that diverse preferences, although presenting social choice challenges, also offer the opportunity for diverse perspectives that help to solve problems with uncertain solutions. Diverse communities or groups do not succeed automatically, as cycling is not something that one learns without some training. But once you learn, cycling goes much faster than running, which is much easier.
Complexity comes from systems that result from the interaction of diverse adaptive units from which patterns emerge that are difficult to predict in advance. A calculus exam is difficult, but not complex, because the parts do not interact.
The more recent book explains that the role of diversity is to provide insurance, competition, redundancy, and innovation. Although the book has mostly a positive tone, it also reflects a preference for diversity. This preference then must be implemented under the positive constraints set out in the book. There are many examples of this, and that is one of the good reasons to have institutional diversity. A preference for diversity makes many of us prefer big cities rather than small villages, although the countryside is also an example of natural diversity.  The author is very aware of the constraints: diversity is no panacea and not every kind of diversity works. If we put lots of randomly different things together they will not create a coherent system from the beginning. In nature, diverse ecosystems work precisley because they have been evolving for centuries. The book has many interesting insights beyond the relationship between complexity and diversity, like the distinctions between data, information, knowledge, and wisdom (in increasing order of structure).
In biology and non-human nature, change comes from evolution. In human societies, it comes both from evolution and from creative intelligence. However, intelligence has plusses and minuses, the latter especially coming from confirmation and other biases.

Thursday, August 10, 2017

The book about Buchanan, and what it says about Tullock

In Nancy MacLean’s “Democracy in Chains” there is an impressive account of the efforts of Nobel Prize economist James Buchanan to build over his career a theory of government and democracy to justify the reversal of all redistributive or environmental public interventions. These efforts were generously funded by billionaires and helped to create the intellectual infrastructure of what is today a very powerful network of right wing organizations. The origins of that network are traced in the book to the resistance of the Southern oligarchy in the US to the enfranchisement of African-Americans. How the school of thought promoted by Buchanan has come to be so influential not only in the US but also in Europe (this economist was one of the favorite of more than one of my undergraduate teachers) is probably a combination of the originality and audacity of his radical ideas and the financial support he received. The book is stronger in connecting Buchanan to the social context of the time than in analyzing his ideas on their merits, something for which the author delegates into basically only just another author (Amadae, which I’ll read). By this, she leaves aside an interesting history of economic ideas, which is the debate between Buchanan and his co-authors and other more progressive economic thinkers, such as Kenneth Arrow and Amartya Sen, who were also concerned about the problems of government and democracy (which are real), who took seriously the critique of Buchanan to public intervention, but who ultimately reached opposite conclusions.

Interestingly, in the book there is also more than a passing mention of Gordon Tullock, the most famous of Buchanan’s co-authors, and who was recently mentioned in this blog. In p. 99 of the book, for example, we can read: “In 1967 (…) for the third time in as many years, the senior economics faculty, led by Buchanan, again recommended that Gordon Tullock be promoted to full professor. (…) Tullock had never earned a PhD and by his own admission had never completed an economics course. Brilliant though Buchanan and his allies might have believed the law school alumnus to be, he lacked training in the field in which he taught, and his publication record –apart from the book he had coauthored with Buchanan- was undistinguished. He was also an awful teacher. It did not help that Tullock struck many as an egomaniac –or just a twit. (Once, for example, as a new colleague was unpacking his books, Tullock appeared at the door. “Oh, Mr. Johnson, I’m glad that you finally arrived,” he said. “I need the opinion of someone obviously inferior to me.”). Tullock would not be promoted. Buchanan was furious.”

Friday, August 4, 2017

The Scaramuccis of the world

The theatrical part of politics attracts individuals like Anthony Scaramucci, the financial executive that lasted ten days as communications director of the Trump administration. It is tempting to say that the chaotic current US presidency is fertile ground for this kind of characters, but the fact is that it is easy to come up with examples from other corners. In fact, the generals that had no option but to take over the sinking Trump presidency have sacked Scaramucci without much hesitation. In private I can give local examples of similar characters from my personal experience. Scaramucci and those like him are fast talking and arrogant. For them, what is important is not any particular ideas or values (they can defend different, sometimes opposite, things in a short period of time), but to express anything with apparent conviction. They have a tendency to talk about themselves and to emphasize humble origins or their contact with important people. In one of the few interviews he had time to give during his brief spell at the White House, he behaved with reporter Emily Maitlis more or less as a drunken youngster would behave in a night club at two o'clock in the morning. It is very revealing to know how this reporter obtained the interview in the gardens of the White House. It seems that she was there for a press conference and she saw Scaramucci taking selfies. She told him that she was from the BBC and asked him without preparation if he was interested in answering a few questions for the prestigious Newsnight program. Scaramucci, who probably had not much traing in international media, probably didn't know anything about the seriousness and the style of reporting at Newsnight. He felt flattered and he gave the interview without preparing anything. The resulting interview did not cause any dramatic accident for Scaramucci, but a similar contact with another journalist around the same days finished with him insulting other White House colleagues. When a new chief of staff was appointed and knew about that, Sacaramucci was fired. In a world of tweets, noise and self-promotion it is probably a matter of time before we see new examples of Scaramuccis, while honest citizens will keep looking for recognized adult behavior in politics. Expect more flamboyant individuals with expensive suits supporting opposite ideas and candidates, but always being flattering to the one they obtained power from.
Before I go to the beach for one week, let me give you two book recommendations to think about politics, economics and much more: the book about the role of James Buchanan in influencing the American right, and a book by Scott Page about complexity and diversity. More about them after the beach.