The Paradox of "Don't Look Up"

OK, I already watched “Don’t look up,” the Netflix movie that presents a caricature of the relationship between scientists, politicians, business tycoons and the media in the hypothetical event of the extinction of Planet Earth. It is a bad movie with very famous actors and actresses (my opinion, but also the opinion of the experts on cinema that I read).

The paradox is that so many people has taken the caricature seriously. The social media and the traditional media are these days full of pieces of very serious journalists or even scientists stressing the “lessons” that can be learned from the film. Most (not all) of them acknowledge that “Don’t Look Up” is not a realistic description of what would happen in similar circumstances (if similar circumstances could ever happen), but after this brief acknowledgement, they go on with some very serious thoughts about the need of evidence-based policies, of a rigorous media, of scientists that communicate well, of honest politicians… I read in a local newspaper, for example, that “it is one of the works of fiction that best describes what we call the world of today.”

It is a paradox because although the film doesn’t have any more rigour than a cartoon to make children laugh, the really interesting story (the meta-film, perhaps) is that, in a way that maybe Orson Welles would have enjoyed, it has been taken seriously by relevant sectors of the scientific, political and media community.

In the Spanish newspaper El Pais (also in its English version) there is a very good piece by Javier Salas, who usefully reminds the reader that the film is a comedy, and that in the real world, it wouldn’t be precisely lone scientists like the character interpreted by Leonardo Dicaprio to warn us about an apocalyptic event. The human species, as explained by Salas, has actually developed quite sophisticated global public goods that work very differently from what is explained in the movie. It could be added that most politicians in democratic countries and international institutions are not like the character interpreted by Merryl Streep, and even when they are (like it happened with Trump), there are still relatively well-functioning checks and balances that address the issue, and perfectly dressed scientists like Anthony Fauci who remain in their positions even after the democratic mechanisms dispose of the disfunctional president. It could also be added that there are media institutions like the CNN or the BBC (or El Pais) who do a pretty decent task of communicating the scientific truth and who are not neutral between posttruth and democracy. It could also be added (and many examples could be given of it) that there is a fluid relationship between the realms of politics and science, with many scholars (for example, in my discipline, economics) crossing the boundary between both from time to time in one form or another. Needless to say, this does not mean that we leave in a perfect world, but we are not going to find clues about how to seriously improve upon it in this absurd movie.

It is a paradox that some people who pretend to see in the movie a criticism to some negative trends in our society, have given an example of seing in it exactly what one wants to see (also called confirmation bias). Others have complained about the banalization of politics when by taking the movie seriously they have been the first to contribute to the phenomenon. I admit that it is also a paradox that I am wasting my time commenting on this.

I agree with what the young Spanish economist Monica Martínez Bravo has said in a tweet: "What we need is to figure out how to "speak to" the skeptics, those that feel "left-behind" by the political and economic system and find appealing incompentent/populist leaders. Not sure this movie will help on that..."

And to speak to the skeptics some more action will be needed out of the comfort zone, but using the real world as a starting point. To me the movie though has a couple of optimistic messages for middle aged men: Jonah Hill can lose weight and Leonardo Dicaprio can be ugly. And that’s it. Happy new year!

Regulatory commitment in twenty-first century democracies

It is well-known that one of the key challenges in utilities’ regulation (to some, "the" key challenge)  is the commitment problem. Regulated firms have the opportunity to undertake massive long-lived specific investments, and then the regulator, once the investment has been sunk, decides whether and to what extent to remunerate the investment. In democratic societies, regulators face strong political pressure not to remunerate the sunk investments, or at least strong political pressure to remunerate them below the opportunity cost of capital. This is so especially in low or middle income countries, where there is a strong demand to use the utilities’ quasi-rents to fund social programs or to address other urgent political priorities. Anticipating this behavior by representative regulators, the regulated firms are tempted not to invest in the first place, leading to an underinvestment problem. Although there is investment in utilities, for this reason it is almost surely sub-optimal.

Throughout history, different polities have developed different institutions to alleviate this problem, from public ownership to independent regulators. I wrote about it here, among other places. Pablo Spiller and his co-authors emphasized that each country tries to fix this problem according to its institutional endowment. The recent book by Auriol, Crampes and Estache addresses this and other pressing institutional problems in regulation in a specific chapter.

Last week I was in Chile to attend an event on water regulation where I gave a presentation on some ideas about how the Chilean regulatory model may evolve after the crucial presidential election they hold this week on Sunday. Of course, much will depend on which of the two presidential candidates wins in this very polarized vote (between the right-wing Kast and the left-wing Boric), but both the two contenders and the candidate who was third in the first round can fairly be characterized as different brands of populists.

The Chilean case in the Spiller framework about commitment institutions that are adapted to the institutional endowment (in comparison for example with the UK, where commitment is based on licences and independent regulators), consists of achieving commitment through detailed legislation (guaranteeing a safe rate of return to private investors) and legislative institutions where it is very difficult to introduce legal reforms. These legislative institutions are based on the Guzmán Constitution of the General Pinochet years, which has been the main motive of the social mobilizations that have triggered the political changes that is experiencing the country: the Boric movement, the Kast reaction, and the Assembly to write a new Constitution. The text of the current Constitution can be interpreted as just one aspect of a system of extreme protection of private property rights that was the legacy of the military dictatorship.

This framework has not prevented Chile (some may even say that it has facilitated it)  from achieving high levels of service availability in water (and other utilities), although now it faces serious challenges in terms of droughts and climate change. The protection of property rights and the center-left governments immediately after the dictatorship that prioritized the eradication of poverty allowed for the extension of service, but probably are not enough today to guarantee the levels of private and public investment and government intervention that are going to be needed to fight climate change, severe drought and water imbalances.

Chile is a good example where the second best institutional fixes to the commitment problem do not really solve, but they relocate, such commitment problem, which becomes a problem of the political system committing or not to preserve these second best institutions. For example, the straightjacket on Chilean legislators has not proven robust to a generation of citizens that are less ready to support with their votes an extreme level of protection of property rights.

It will be very interesting to analyze how the Chilean regulatory model evolves in this disruptive, but happily democratic, times. Second generation commitment devices will be needed if underinvestment is to be avoided. Some experts on the relationship between populism and economics have claimed that the risks of the current wave of populism are more microeconomic than macroeconomic as they were in the past (perhaps climate change denial on the right, and property fetishism on the left?). The younger and left wing candidate, Gabriel Boric, has been advised for the second round by what the Chilean media has called a center-left technocrat, former Yale academic and current professor at University of Chile, Eduardo Engel, co-author of a widely read book on public-private partnerships. One can see that the existence of a second round is also a commmitment device to avoid extremisms… although the new Constitution could in theory also change that.

Worker Cooperatives in the Classroom

"Was John Stuart Mill wrong?" This is the question of an exercise of the e-book The Economy (CORE Project), which I discussed last week with my introudctory economics students in the new degree on History, Politics and Economics at my university. Mill had said that in his times, there were no more worker cooperatives because workers lacked a good enough education, but he added that with the universalization of education, workers would be better prepared and worker cooperatives would expand. However, the puzzle remains today about why in a democratic society with universal education, the working majority have not been able to generalize an economic organization where this majority has the power.

My students had to do some research and they came up with some standard reasons: the combination of scale economies and financial imperfections, the accummulation of risk for worker-owners, the fate of takeovers by conventional forms, incentive problems because of free-riding in team effort, and the improved outside options (as compared to Mill’s times). They also pointed out systemic effects: competition with lower salaries from conventional firms, lack of accompanying institutions…

These problems are compensated by many benefits, otherwise it is hard to understand why there are still so many cooperatives or firms with intermediate forms, like those with worker representatives in relevant boards (like in Germany), or those with participation of workers in the ownership of an otherwise capitalist organization (shared capitalism).

Cooperatives are still more democratic than conventional firms, and in some cases they are more efficient or at least not less. In the knowledge and care economy, where intangibles are more important than in the past, they may increase their relative importance. As Dani Rodrik said, firms with worker participation may be better at internalizing the effects of production in local communities and at creating good jobs in complementarity with place-based policies.

Specific cases, like self managed firms in Yugoslavia, may have ultimately failed not because of self-management being a bad idea, but because of the weight of a single-party system and the lack of outside options.

A student said that a social revolution is necessary to make cooperatives sustainable. That’s perhaps too strong a statement, but he is probably right in that to have an environment more friendly to cooperatives some global changes are necessary.

There IS such thing as society

There is a famous quote by Margaret Thatcher, where she said that “There is no such thing as society.” Although what she exactly said was more nuanced than the literal interpretation that is usually given, the sentence came to symbolize the idea of an atomistic and individualistic human world, where each one should basically care for him or herself. 

The Covid-19 pandemic has shown instead that there IS such thing as society. It is precisely because we live in society for many good reasons (and in contact with non-human animals), that we are vulnerable to diseases. And only through collective action we can defeat the pandemic, that is through a combination of the coercive action of government at all levels and the consent and civic participation of citizens.

John Gowdy has the opposite view of Thatcher, and he argues that we are an ultrasocial species. Like ants and other social insects, according to this scholar the human individual is now subordinated and guided by the blind will and reproductive instincts of the species, to the detriment of free will and happiness.

Whether we are a social or an ultrasocial species, we have at least cooperative instincts, and that is key to understand why we have adapted to most of the Planet, and also why we may be in the course of destroying our own life in it. The expanded role of government that even the liberal magazine The Economist (in its last issue) has come to accept as a necessary fact of life with the pandemic, will if anything consolidate with the need to stop climate change.

Our social instincts have their origins in the hunter-gatherer groups of our ancestors, and have been applied with success in families, nations and other groups. The challenges ahead force us to apply the same instincts to the whole planet. Following Amartya Sen in “Identity and Volence,” it would be the wrong kind of federalism to accept that we live in a federation of pre-defined communites, cultures or religions. We all have multiple identitities, and it is this pluralism (and not a naïve view that we are all the same) that can make us aware that we share some identity dimension with someone with whom perhaps we do not share other dimensions.

We need more socialdemocracy in a multi-ethnic society: we should have the solidarity of Scandinavian countries in communities that are as diverse as the USA. Eventually, and as soon as possible, we should have world solidarity –or face extinction.

Teaching economics as if nothing happened inside the firm?

For many decades, economics textbooks treated firms (and government agencies, and other organizations) as black boxes. It is strange that a person who studies economics in the university can be introduced in microeconomics, and in the discipline in general, without analyzing the relationship between employers and workers, which is, perhaps, the core relationship that defines our economic system. It is as if one wanted to keep youth protected from intellectual and political debates, and the ideologies that have shaken mankind in the last two hundred years. 

All they will see, if they use any of the so far dominant textbooks (until the publication of the CORE’s Project free e-book The Economy) is the same graph of supply and demand in a perfectly competitive market, typical of some consumer goods, applied to the supply and demand of labor. Apart from this graph, in the up to now dominant textbooks, nothing is said about what occurs within the firm between owners or managers, and the workers, nor on the implications that this relationship has for the structure of the whole society. 

However, as Coase and Simon stressed, many, perhaps most, of the relevant trasactions and decisions in an economy take place inside the firm and not in markets. Decisions about working conditions, job allocation, promotions, hiring, outsourcing, plant closing… take place inside the planned economy that is a capitalist firm. The incomplete nature of labor contracts introduces the role of power and authority, something that both Marx and Coase, from different perspectives, emphasized.

The allocation of talent, the internal organizational design and the allocation of effort to different tasks, which happen inside the firm and other organizations, determine not only the opportunities that different individuals have (and hence have distributional implications), but also the efficiency and productivity of the whole economy. 

This is why, if you use the e-book The Economy with your students (as I do), these will be exposed to what happens inside the firm, opening the black box, before they see a supply and demand graph.

Public-private projects and beyond

I gave yesterday a lecture on public-private partnerships at a Master for public servants. I gave them material on the literature about formal and conventional infrastructure public private partnerships from economists and business schools, but we spent most of the time talking about their own experience in the local and regional government with projects that involved both the public and the private sectors. It was easy for the students/public servants to come up with examples of projects with public and private inputs.

It was clear from both the examples and the literature that both the public and private sectors had by their nature strengths, weaknesses and common challenges. We concluded  that we need high capacity governements at all levels and that strong governments are complementary of good public-private projects.

We focused also on problems of cost underestimation of infrastructure projects, renegotiations and corruption (which are interrelated). Some of this is covered in the work of Chilean economists Engel, Galetovic and Fischer, including their 2015 book on PPPs and their more recent article (with Campos) on the Odebrecht case. Bengt Flyvbjerg has a recent very interesting article on the persistent bias of cost-benefit analysis of infrastructure projects to underestimate costs and overestimate benefits. To counter this trend, he proposes to introduce statistical and institutional measures to de-bias estimations, to punish (with jail if necessary) the more scandalous cases of mis-estimation, and to democratize the evalutaion of public projects along the lines of the work of social psychologist Slovic instead of the technocratic cost-benefit analysis promoted by authors such as Sunstein.

We will need more and better public intervention, complementary of civic participation and consent, to face pandemics and the climate emergency. We need to increase the efficiency and productivity of public projects, and mobilize all the resources of society in a transparent and fair way to face these challenges.

We had everything

(This is an English version of my review of "Barça," the book written by Simon Kuper. The book review is originally published in Catalan in the paper version of the November issue of the magazine Política & Prosa)

Barcelona is a city that has everything, prosperous and powerful. It is one of the best places to live on the planet, if you can afford it and you have the opportunity to do it. It is the place they chose to work and live some of the great talents of football, such as Cruyff and Messi. The love story between Barcelona and the great talents of world football is told by journalist Simon Kuper in his book about Barça, published in the summer of 2021 after two years of research. Kuper came to study the success of the club, and has also ended up writing an extraordinary chronicle of its sporting, organizational and social decline. 

Between 2008 and 2012, with a prelude in 2006 and a brief resumption in 2015, Barça became the most successful football team in the world and the one that played the most attractive game. The human and random roots of this prodigy are explained in this book, and have little to do with the skills of the officials who ran the club during those years. On the contrary, the last chapters of the book explain how the directors who presided and continue to preside over the phenomenon, were and are unable to govern the cycle and give it continuity, and have led the club to a decline that has already begun, of unpredictable duration and dimension. 

Sometimes it takes an outsider to tell us the truth, like in the movie Spotlight (where a Jewish journalist from Florida shook the waters of Catholic and inbreeding Boston), or like the BBC with the attacks of March 2004 in Madrid, or as the New York Times with the Russian connection of the Catalan independence “process.” The publication of the book coincided with the traumatic departure of Messi, about which neither the board that finally announced it, nor the local media, had been able to warn in time of its inevitable nature (if Kuper had the data of the financial collapse, current President Laporta also had to have them in the fall of 2020 when he ran for the job). Kuper is an unashamed cosmopolitan (what some contemptuously call a “globalist”), immune to identity demagoguery and capable of valuing diversity and imagination. To write the book, he spoke empathetically with half of Barcelona (and valued its plurality) and had wide access to the club and its protagonists. 

The football of the last 50 years will probably be analyzed in a while as the result of two shocks. The first shock, produced by the confluence of the Bosman Ruling and the new television and competitive formats in the 1990s, took Barça very well prepared, and laid the foundations for successes, which also had a random component (a difficult to reproduce generation of players from the academy), around 2010. The second shock, however, that of the Covid-19, with the sudden reduction in revenue (and the consequent desperate search for new formats such as the Superleague or the World Cup every two years), has taken the club at a very bad time, and may negatively condition its performance in the coming years. 

The good years were based on an academy that had been solidifying in the 1980s and 1990s, based on good coaches and infrastructures, which made Barça an attractive place for Messi or Iniesta. And they relied very fundamentally on a tradition of good football that had arrived in Barcelona from the Netherlands in the early 1970s, first with Michels and then with Cruyff the player. The arrival and slow consolidation of Barça as a hub for Dutch "total football" was the result of a process of trial and error, testing what seemed to be successful elsewhere. Between Michels and Rijkaard (from whom it can be said that there have only been pro-Dutch head coaches, with the exception of Tata Martino, although before Guardiola there was speculation with Scolari and Mourinho), the best coaches were signed, be they German, English, Argentine or Spaniard. Kuper expresses his admiration for Cruyff and Guardiola as coaches, and more generally for Dutch football. Cruyff was a genius who revolutionized tactics (radicalizing Michels’ offensive concepts) and Guardiola systematized and professionalized the bet. The author of the book draws a parallel between football innovation and Schumpeter's concept of "creative destruction" in economics. Van Gaal, an intermediate step with much worse press than Cruyff and Guardiola, who made Xavi, Puyol, Iniesta and Víctor Valdés (mainstays of Guardiola's Barça) debut in the first team, as the author of the book says, was a “cruyffista,” though he would never admit it.

Admiration for Cruyff is not blind and uncritical. Kuper explains his misunderstanding with the Dutch star in an interview, and recalls that Cruyff was lucky with some of the titles he won as Barça coach, and that, like other football superstars, he was surrounded by chamber journalists and flatterers (“yes-men”). Perhaps one of Cruyff and Guardiola’s main innovations was to value short, relatively fragile players, who were traditionally undervalued by clubs. As in the book and film Moneyball (where Michael Lewis explains how manager Billy Beane revolutionized the baseball transfer market), the tradition was based on prejudices about the physical appearance of the players, that Cruyff and Guardiola's Barça (and also of Van Gaal and numerous coaches of the academy) left behind. Another virtue that Kuper praises is that Guardiola was influenced by ideas from other sports, something that a multi-sports club like Barça facilitated. The fact that Kuper is not as uncritical as the local press does not prevent him from sometimes exaggerating his praise a bit. For example, when he says that Guardiola (a coach whose successes have always been accompanied by huge quality players) "like Cruyff was only trying to sign players who were in the top ten or who played in places that the Masia could not cover" . Certainly when he wrote this he did not have in mind the names of Romerito, Korneiev, José Mari (signed by Cruyff), or Chigrinsky (signed by Guardiola). 

Barça does not escape some empirical regularities of football: the economy of the superstars that shake the finances of the clubs, the populism of the directors, the need to share income with rivals… But, in addition, the directives from the successes around 2010 succumbed, perhaps understandably, to the “hybris” of thinking that they were endowed with a magic wand, and they never thought that bad years would arrive, as if that success were not absolutely extraordinary. Barça has become a case study of how to fail in the preparation for the future. The financial pressure of the big stars reached its climax in the second decade of the 21st century with Messi, the best player in the world, and the financial and sports discipline was relaxed. No one dared to tell Piqué, Busquets or Alba that their time had come. Although Barça ranked as the highest-revenue club in the world, it also ended up as the most indebted. This happened especially with Bartomeu as president ("a gazelle among lions", perhaps because of all the recent presidents he has been the farthest from the cores of football corruption), but his weakness also stems from an environment uncritical with the big stars and a Cainite climate among the families of the bourgeoisie who want to preside over Barça, a club that combines the democracy of the members and the oligarchy of the leaders (one must have enough collateral to be one). If Kuper does not fall into the false dichotomy between Cruyff and Van Gaal, he falls even less into the supposed contrast between Rosellistas or Laportistas (derivatives of the names of two presidents), so familiar to the Catalan press. They are all members of what journalist Cristian Segura has called the Upper Diagonal (the rich neighborhoods of the city) in the book "Gent d'Ordre." Over time some of those who have praised Cruyff so much have forgotten key aspects of his legacy, such as that the academy is about traing and its coaches should not be punished when the teams do not win what they are expected to, or that the dressing room is inviolable. 

At some point, Barça as an organization stopped learning and being open to the best of what was happening in the world of football. If Spain gave a Dutch Football lesson to the Netherlands at the 2010 World Cup, Bayern gave Barça a Total Football lesson in Lisbon, still with Messi, Suárez and Griezman. Today, the best Total Football is played in England and Germany. Meanwhile, Barça no longer have distinctive features and has become a club with the defects of so many others, returning from hunting without any piece in recent times, as influenced by the inertia of Catalonia in the independence process: “the unarmed army of Catalonia fights against himself,” says Kuper in a description of the extraordinary political climate, which highlights the risk that a Barça with an openly pro-independence president (like Laporta is) will stop uniting Catalans. The book was just written coinciding with Laporta's accession to the presidency in 2021 after a campaign in which he promised that Messi would continue (it would be so easy for him to convince the Argentinian), and before Messi's departure, that no one in the local press could anticipate. Kuper has no illusions about the ability to manage of an impulsive Laporta, who is remembered in the book for an unfortunate sexist incident on election day. 

Possibly the success of 2008-2012 was a unique mirage, but if talent could not be retained, much more could have been done to maintain the ability to produce, acquire and retain it, or plan the succession. When Cruff, Maradona, Rivaldo, Ronaldo, or Ronaldinho left as players, Barça continued to win titles. It will be difficult for it to happen again, because the shock of the pandemic has hit Barça at a bad time. But it is not written in stone that it can never happen again, because there is still a rich and powerful city that attracts with its magnetism, and a large community of fans with a feeling passed down from generation to generation.