Saturday, September 30, 2023

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.

Sunday, September 17, 2023

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.

Sunday, September 10, 2023

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.

Saturday, September 9, 2023

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.