Wednesday, February 14, 2024

Some thoughts on Colin Mayer's last book

Colin Mayer is one of the world's most recognized experts in Business Economics and corporate finance. As founder of Oxford University’s Business School, he has launched numerous research and advisory projects with some of the UK's and the world's leading companies. 

He has dedicated his professional life to pointing out both the weaknesses and the transformative potential of the capitalist firm as a key institution of our society. In this book "Capitalism and Crises" (which completes a trilogy that began with “Firm Commitment” and continued with “Prosperity”), he proposes a new firm model, one that moves away from creating problems for society, and that, on the contrary, focuses on finding solutions to these problems and at the same time generating profits for shareholders. 

The author is forceful in pointing out the responsibility of the capitalist company in the generation and aggravation of some of the great problems of humanity: climate change, social inequalities, or political instability. The reason for this responsibility lies in the fact that, in the current model, it is possible to obtain business profits as a result of creating problems for society, either by polluting, making available to consumers products that are harmful to their health, or making decisions to the detriment of the prosperity of local communities. 

Competition in the market does not solve the issue, since one company can displace another by earning more profits, creating more, and not fewer, problems for society (even for consumers themselves when they are free to choose, as Akerlof and Shiller pointed out in their book “Phishing for Phools”). The State's corrective action does not resolve the issue through regulation either, due to its limitations as it is carried out. In some way, regulation usually arrives too late, and the possibility of it being “captured” by regulated companies is one more of the problems that they contribute to generating, thereby obtaining a profit (a problem that, according to Mayer, Artificial Intelligence aggravates). 

In reality, the capitalist corporation shares responsibility with the State and with the public-sector firm in its inability to stop the great problems of our time. The company as an institution has a great responsibility in creating problems and at the same time in the possible search for solutions to society's problems for two fundamental reasons: for its unique capacity to direct enormous resources generating social impacts, and for its potential to innovate by leading technological change. 

The proposal made in the book to focus the business task on solving problems generating profits has a philosophical background: it would be about replacing a Golden Rule (“do to others as you want them to do to you”) with a Moral Rule (“do to others as they would like”). Based on this principle, business legislation should be changed to one that forces companies to generate profits without generating problems, that is, avoiding the generation of harmful effects for the rest of society. Each company should choose to focus its activity on the “purpose” of solving a problem generating profits, and articulate all its work, its structure, its corporate governance and its control and measurement systems, in solving this problem. The company's accounts, for example, should not only reflect the value of the cost of production inputs and income through the sale of outputs, but also reflect the impact (positive or negative) on society and any type of measurable outcome that arises from their actions. This would be different from the ESG movement (the acronym for environment, society and governance), which also aims to measure the impact on social problems, because in Mayer's model this impact would become something nuclear, necessarily integrated into the core objective of the company, unlike what happens in the ESG model, which according to the author has been used fundamentally for propaganda purposes. 

According to Mayer, the change in model is feasible among other reasons because it is compatible with the power of shareholders and the objective of maximizing profits, as long as these business profits are accounted for net of the cost of the activities that the company generates for third parties. The difference with the current system is that it would not be the State that would be in charge of correcting the "negative externalities", but rather the company itself, forced to do so by legislation. 

The separation between business and the public sector would be naïve according to Mayer, leading to a train wreck between institutions that have an impact on the same society, but do so with opposite objectives (profit without taking into account the problems that the company generates, and public interest without sufficient instruments to satisfy it) in the current situation, in many cases. On the contrary, the company should be involved in social objectives as a core task and not a secondary one, and the state should work side by side with companies on the same objectives. In this sense, Colin Mayer's criticism of the British regulatory and privatization model in network industries (which he helped design, together with other economists, in the 1990s), which today is in crisis, is devastating. The criticism of privatized energy, water and railway companies, and their regulation by independent regulatory agencies, is reminiscent of that made by historian Tony Judt in the book he wrote in the last stage of his life, “Ill Fares the Land.” The notion that a benevolent regulator separated from the day-to-day work of companies ("arms-length regulation") that are solely accountable to their shareholders and their objective of maximizing profits, will succeed in imposing the public interest, would be enormously naive. 

Saturday, February 3, 2024


On Thursday February 1st, the CNN started the day criticizing the Republican candidate Nikki Haley for her support to the right of Texas to secede from the USA. To be fair, she was reacting to a question, and not explaining her program. However, it is not the first time that she shows lack of clarity on matters concerning the history of events related to the US Civil War in the XIXth century. On another occasion, she failed to acknowledge the tragedy of slavery.

However, on the evening of the same day, Jake Tapper interviewed Haley on the same TV network, and he didn’t mention the issue of “Texit” at all, although it had been the main headline some hours earlier. One can imagine that the office of candidate Haley had agrred to the interview on the condition that the secession of Texas would not be one of the topics of conversation. They talked about Iran, Hamas and the likelihood of defeating Trump and subsequently Biden.

Of course, Texit is not a serious proposal. But that does not mean that some people does not take it seriously. Brexit was not a serious proposal, but it is now a tragic reality. One can imagine millions of Texans believing the arguments of populists to “take back control” in front of the invented risk of rapists crossing the border.

“States rights” in the US have been on many occasions a synonym for the rights of elites to exploit others, and to take advantage of the prejudices of voters. The secession attempts of the Southern states preceded the Civil War in the US, which luckily was won by the federalists and lost by the confederals. Because of this victory, the US enjoys today the advantage of a large market and scale economies with a diverse and mobile population, which is also the dream of the European Union. South and Central America failed to fulfill the federalist dream of Simon Bolívar, and the African continent also failed in consolidating federations that would have replaced the current structure of small and sometimes isolated and hungry states. Egyptian leader Nasser also failed in his project to create a Federation of secular Arab states. We know today the price we are paying for this deficit of federal structures.

US Presidential candidates should be surrounded not only by communicatins experts, but also by serious historians.

Sunday, January 21, 2024

New ideas for the course on economics and soccer

One of the advantages of teaching about soccer and economics is that there are new things happening everyday, on the pitch, in the industry,… and in the offices and computers of researchers.

As I start a new edition of my course “Behavior and Incentives in Economics. The Case of Soccer” in the Study Abroad Program of the Autonomous University of Barcelona, I take advantage of three documents that contain new and very useful material:

-The IEB Report on Soccer and Economics published last year (which I coordinated) contains useful articles by Andrew Zimbalist on big Sports events, Thomas Peeters and Jan Van Ours on the role of managers, and Julio del Corral on the relationship between behavioral economics and Sports mechanism design (for example on penalty shoot-outs and the away goals rule). The piece on managers has a very useful example about how to compare managers that have a bad streak and are sacked in the middle of the season (like Ronald Koeman at FC Barcelona in 2021), with managers that experience a similarly bad streak and are not sacked (like Valverde in the same team a few years earlier): on average and in the particular example examined, there is not much of a difference, concluding that sacking the managers in the middle of the season does not have a causal effect on team performance.

-“Teaching Sports Economics and Using Sports to Teach Economics,” a book edited by Matheson and Fenn, is a very helpful teaching guide with very useful bibliographic references and teaching tips. I found especially useful the section on Women in sport, and advice on thinking about streaks and generating random sequences in class.

-“The Beautiful Dataset” is a new survey article by Ignacio Palacios-Huerta (author of the book “Beautiful Game Theory”) with an updated survey of mainly empirical literature on Sports, testing hypotheses from economics and related disciplines. The survey is very complete especially in those topics that Palacios-Huerta has researched himself, such as penalty kicks and referee bias. I learn from a footnote that in Hockey most penalties are not scored, meaning that if players believe that lagging behind in a penalty shoot-out places them at a significant psychological disadvantage, they should choose if they can to kick second. Meaning that if players can choose after the coin toss (as they can in soccer since the early 2000s), the order of kicking is not exogenous, which makes difficult to interpret in a causal way the results of research after that change in the rule (before the change, the order of kicking was exogenously decided by the coin, a point made by the only article I missed in the survey, by Kocher et al. -an article mentioned by Del Corral in the IEB report, that was recommended to me by Toni Ítal·lo de Moragas: thanks!).

These three documents overlap and leave gaps specific to soccer that I will try to fill in my course. The book on “Teaching Sports Economics…” is mainy about teaching and mainly uses examples from professional North American Sports leagues, although giving plenty of ideas and suggestions for soccer. Palacios-Huerta’s survey is mainly about how sports (and not only soccer) provide an ideal setting for field experiments, as the rules of contests are similar to the rules of experiments, and the protagonists are real professionals with high stakes (unlike subjects in lab experiments). Both the book and the survey have very useful material on the economics of discrimination in Sports, which is something I have been emphasizing (with a whole new chapter) in the last editions of my course. Also useful is material on managers: I learn that perhaps one can further compare managers that experience a similarly bad streak against teams of a similar quality, and not only experiences a bad streak against any team, and distinguish between sacking good and bad managers. The IEB report only digs deeper on three topics about soccer, meaning there is still a lot of work to do, for example on political economy topics, such as corruption and populism. With games every day and with researchers working at full steam, there is no shoratge of ideas to keep updating my course.

Saturday, January 6, 2024

Delors AND Spinelli. BOTH

For most of the around 150.000 years of existence of our animal species, until approximately 11.000 years ago, humans were organized in egalitarian bands of hunter-gatherers. Then with the Neolithic Revolution, property rights emerged and unequal societies developed, although the primitive agricultural techniques were not more productive than ancestral practices. For most of the next eleven centuries, living standards were quite homogeneous and stagnant around the world, until there was a phase transition starting in Britain with the Industrial Revolution, that saw productivity dramatically and heterogeneously increase (this narrative will sound familiar to any reader of Samuel Bowles and CORE’s The Economy).

Just before the era of the Industrial Revolution, there was a rich diversity of political organizational forms. Five hundred years ago, the Italian Peninsula was home to hundreds of sovereign entitites, but along with city-states, there were also leagues of cities, empires and hybrid alliances. Democratic forms with varying territorial structures, based on elections or sortition, had been tried in many jurisdictions, from classical Athens, to Venice, to India and Africa. Then, together with the expansion of capitalism, this economic system found an almost perfect complement in the nation-state, which provided allegiance to the provision of public goods (waging war, speaking national languages) and coercive systems that facilitated the expansion of markets and the protection of property rights, as we know from Ernest Gellner.

The nation-state, like the Neolithic Revolution some centuries earlier, emerged not because it was more efficient, but because it complemented well the objectives of elites. The fragmentation of empires and the end of colonialism was used (sometimes by elites coming from Europe, as in the American continent) to export the nation-state formula all over the world. There were roads that could have been taken (there were failed attempts or projects) but were not, like large federal structures in Central and South America or Africa or Israel/Palestine. Large federations only succeeded, however, in North America and the Indian subcontinent (perhaps we can add Australia and Brazil).

After the tragedies of the two World Wars, both born in Europe, there have been projects to create political organizations that went beyond the nation-state formula. The most successful one is the European Union. Its gradual evolution towards a federation is, according to the Spanish writer Javier Cercas in Le Grand Continent, the only reasonable utopia of our times.

After the fall of the Berlin Wall, we were probably too optimistic that globalization would make nationalism obsolete and that the march towards federalism would be fast and unproblematic. The global financial crisis and the imbalances created by globalization and technological change have made things much more difficult, and have probably facilitated the emergence of dangerous ultra national-populists that today threaten democracy.

The European utopia is already true in part, however, because of a combination of collective action, evolutionary forces and leadership. These days, we celebrate the life and achievements of one of the greatest European leaders, Jacques Delors. He pushed the ideal of the European federation through practical steps like the Single Market, the Erasmus Program or the Cohesion Funds. In the obituaries that have been written these days, some have opposed the practical and step by step federalism of Delors to the ideological federalism of Altiero Spinelli, the Italian politician that co-wrote the Ventotene Manifesto. True, Delors was not a dogmatic federalist, and Spinelli was not a man of government. But the two of them complement each other very well, and we need the memory of both to fight the sovereignist national-populism of our days, with practical feasible proposals and with an emotional narrative that can galvanize the public opinion.

 “A federation of nation states” was a proposal of Delors that has been interpreted by some as an oxymoron. I interpret it as a way to make it easier to digest that the world of nation states has to evolve, that it is already evolving, at least in Europe, towards a world where currencies, parliaments and armies can be shared, and borders can disappear. Other quotes of Delors clarify that he was not at all far away from Spinelli. He also said that "Politicians who attack the dream of a federal Europe are racist bigots intent on undermining the Continent's freedom and peace", and that "Federalism is a guideline, not a pornographic word, you can speak it out loud...We have been focusing too much on a country that has said no, no, no!"

We can call them states, but if things go well, they will be very different from the all powerful nation-states that still prevail in the indoctrination and imagination of many people. They will be at some point States In Name Only (SINO), like Brexit will become Brexit in Name Only (BINO) because the UK will progressively get closer again to the Single Market and the Customs Union. And like the two state solution in Israel/Palestine will only be functional if the two “states” share several key collective goods, and cooperate in the creation of a polity with equal individual rights instead of transforming the current disfunctional wall into an internationallly recognized frontier (like modern both Jewish and Palestinian pacifists defend).

We need to move from an either/or mentality to a both/and mentality, as argued by the Jewish Scholar Noam Pianko in “Zionism. The Roads Not Taken” (Indiana University Press, 2010). We need to celebrate BOTH the memory of Jacques Delors AND of Altiero Spinelli.