Socially responsible economists

Echoing Friedman (who said that the social responsibility of firms was to make profits), one could say that the social responsibility of economists is just to write and publish academic papers. However, that’s not the view taken by many economists, from Paul Krugman to Thomas Piketty -who have also published many academic papers.

There’s a very interesting video with a recent debate at the UCL policy lab about the role of economic expertise in a world of populism and post-truth politics, where the participants suggest that economists can play a positive role, but that this role is difficult and its effectiveness does not only depend on politicians listening.

There are many examples of economists finding difficulties to convince the public opinion about their lessons. Italian economic technocrats have been more successful reaching power by default than by election. Several scholars have studied precisely the difficulties of convincing citizens of complex ideas, such as indirect or unintended effects of simplistic policies. The mistakes made by many economists in the global financial crisis do not help. People may have a clear and natural understanding of ideas that promote fairness (although some may take a very local and narrow view of it), but may have more difficulties understanding efficiency-enhancing policies.

In some contexts, economists have played an important role in convincing people of realistic policies, without losing values and social objectives from sight. For example, in the recent Chilean presidential election (especially in the second round) and in the Constitutional process, center-left economists played an influential and in my view positive and successful role. Several of the left-wing presidents in Latin America (Chile, Colombia) have center-left economists in government as a moderating factor. Others may believe that this is not necessarily a positive development. In experiments, it is not difficult to show that well argued conventional economic ideas may be more powerful than populist arguments.

Other economists may exert their social responsibility in different ways. Nobel Prize winner Daniel Kahneman and very prestigious Israeli economists recently signed a manifesto rejecting the illiberal reforms of the current far right coalition government. Projects to reform the teaching of economics have been promoted by economists that got involved into that in a way that went beyond their professional (paid) duties, for example in the CORE Project.

There is a recent article by Jean Tirole on the social responsibility of independent agencies, where he calls for caution about the involvement of Central Banks and antitrust authorities on objectives that go beyond their original remit. The same caution should apply to economists individually when they get involved in social, political or civic issues. But in my opinion there are two wrong attitudes in front of the necessary engagement of the profession with social problems. One is to reject it, because “it is not our job,” which would have a social cost when this contribution may result into socially desirable policies. Another is to be involved only in a marginal way, rejecting the scientific method and creating a straw man about the rest of the profession.

Sometimes the social responsibility is to be partisan (see the trajectory of Paul Krugman), and sometimes it is to defend one’s independence, when this is not disguised as artificial balance (perhaps the BBC economic approach with Brexit during the referendum campaign). Economists should be more than dentists and technocrats, but they should also be as effective as good dentists and technocrats who use the scientific method. As social scientists, we are scientists but also part of society.

Monarchs

Last summer I talked to Standford scholar Barry Weingast at an event, and he told me about work he had done some time ago on Spain, about how the role of institutions such as the Monarchy under King Juan Carlos and the Catholic Church, gave guarantees to the olygarchies that the stakes of democracy would be low, which would facilitate the democratic transition. Weingast laughed while he explained to me that he had recently learned that King Juan Carlos turned out to be a corrupt playboy. He had been useful at a particular historic juncture, but both himself and history had reached the conclusion that his role as a serious character was no longer necessary.

His son in law went to jail also for corruption, and his son, current King Phillip, struggles to keep the reputation of the institution amid the scandals that surround his family.

Other monarchies also provide material for conversation. Prince Harry of England said some time ago that he would be leaving the Royal family, but actually we are reminded through him of its existence. The fact that we don’t care much about his relationships with his brother has not stopped him from becoming a well paid (I asume) celebrity, whose work seems to be to talk about his famous family.

I wouldn’t spend much time and political capital trying to get rid of them as an existing institution, as these energies could be spent on more productive uses, and movements to remove them may empower all sorts of populists and opportunists. Monarchies in serious federations can survive as local curiosities, they may even be subsidized. There may be national kings and queens in Europe as there are tribal kings in the Southafrican Republic, as well as folkloric chiefs in many other cultures.

Monarchies are residuals of medieval systems and they should be treated as such. A modern system of government cannot associate political power to a legitimacy that is not based on merit or vote, but on blood. I know there are some advantages to neutral and permanent institutions, but I don’t see them weighing more in the XXIst century than the argument that it is an unfair hereditary system.

They should lose importance, and try to be discretely useful while the instituion still exists. If that is too demanding for them, at least they should try not to be embarrassing.

Countries

The speech of the year was given by the UN Kenyan ambassador, Martin Kimani, warning about the obsession about changing borders to ethnically purify nations. African borders were drawn in distant metropolis. “Today across any border live people who share bonds. We didn’t choose to pursue states under ethnic lines. We pursue continental integration. Rather than form nations that look back in history with a dangerous nostalgia, we chose to look forward, to follow the rules of the UN, not because we liked our borders, but because we wanted to build something greater, forged in peace.”

If it was functional to the expansion of markets and capitalism a few centuries ago, today the economic functionality of the nation-state is over. Rodrik’s trilemma cannot be solved by eliminating globalization (think of the Internet and climate change, but also of moral universalism), and we must choose between combining it with jurisdictional (in taxes, regulations, etc.) competition or combining it with a progressive (both in the sense of evolving, and in the sense of social progress) democratic global federalism. The European Union should be only the beginning of this.

The federalist alternative to post-colonialism has been much more successful than the replacement of colonies by small countries. Africa and Latin America could have chosen to go the way of North America or India, but they chose (or others chose for them) to go the way of the small country with its flag, its currency and its army. There is no need for more of them.

The war that started in 1914 has not completely finished and we still see nationalism as one of the big political forces of our time. Yugoslavia shows the logical conclusion of the domino effect: from an integrated federation, nationalism threatens to push ourselves through a slippery slope where at the end each individual will remain on top of their roofs waving a different flag.

The times of Wilson and his opportunistic push for self-determination (of the territories in the losing empires) are gone. Perhaps state competition had some benefits until the nineteenth century, but after the catastrophes of the twentieth, they are over. The nation-state locks us in an inefficient evolutionary equilibrium. Many potentially better institutional innovations remain unexplored.

Happy new year.

Democracy according to Elon Musk

The era of the petulant olygarch, in the words of Paul Krugman, has brought us an illustration of the dangers of fake democracy.

Some days ago, the new owner of Twitter, a platform that should be a global public utility and that he recently purchased, Elon Musk, disguised himself as a democrat and asked this to the Twitter community:

“Should I step down as head of Twitter? I will abide by the results of this poll”

He did not specify whether "head" meant owner or chief executive, or both. Currently, he is both.

The possible answers were yes or no and the yes vote won by 57% to 43% (meaning that Musk had lost the vote). Many of us voted and others took him even seriously.

Hours after the poll being closed, Musk announced that he would continue ruling Twitter until he found someone “foolish enough” to take the job.

He will still be the owner, though, even if he delegates into someone who cannot be now someone of high calibre, since we already know that it must be someone foolish enough. And if he finds someone, Musk will retain the power to fire him at any time.

Capitalism and Democracy have different rules. In a true democracy, people vote under the rule of law, and it is in that context that one person has one vote, and the votes are aggregated with one of a variety of possible (none of them perfect) voting rules. When people vote, the consequences of the referendum should be clear to everybody (a criterion that the Brexit referendum did not satisfy). In a capitalist firm, there are also rules, but these give the residual control rights to the owners of capital, who are usually a tiny minority of the people involved in a corporation. That is why there are limits to unrestricted private ownership, as there are limits to markets, to protect the rest of us from owners who impose unwanted costs on the rest of society.

The Venice Commission guidelines on the holding of referendums, which sets the standards for this type of votes, establish that plebiscites must take place under clear rules and under neutral authorities, among other rules. Of course, none of these guidelines were observed by Mr. Musk, who most probably doesn’t even know about them.

But referendums are one of the preferred tools of national populists and autocrats. They obviously prefer to win them, but they will play with the result if they lose. Even when they are called under good intentions, like the referendum on the peace agreement in Colombia in 2016 (the same year as Brexit), they are used by demagogs and opportunists to erode democratic institutions.

The blurring of borders: moral universalism, nation-states and the World Cup

The appeal of nation-states today lies more in the emotional services they provide than in their functionality in the world of the twenty-first century. The demand for secession, for example, is more influenced by identity issues than by economic issues, although secession movements have clear economic implications. As the UN Kenyan ambassador recently said, more than fighting the battles of the past about borders, most countries today try to cooperate over them. In Europe, the mechanism to make borders irrelevant is called European Union.

The 14 players (out of 26) of the Moroccan national team in the soccer world cup that were born in European countries, are not fighting for a nation-state they barely know, they probably just want to be treated with dignity in Europe. And still, because there are residuals of old times where borders mattered more, they have been caught singing against the independence of Western Sahara (the intricacies of which may elude them).

National anthems (better not to understand what they say, usually related to arms and enemies) are still part of the ritual of world cups, but some players of the contending national teams may be team mates during the ordinary season and have difficulties to understand the animosities in the stands. Some of them have been criticised for not being able to sing anthems correctly.

Many of the world cup players are probably moral universalists, they are willing to cooperate and show trust with strangers as much as with co-nationals. Actually, that’s what they do all year long in their club teams. Hopefully, national rivalries will be more and more relegated to the soccer pitch, where we may accept to play our ritual warrior dances, in a similar way that there are folkloric festivals in many developed and multicultural cities.

The degree of moral universalism has an impact on many decisions that matter for our standards of living and for the kind of society that we are building. It may affect our decisions on education, investment, consumption and the policies that we support.

The semi-final between Morocco and France will show two national teams that are expressions of the same phenomenon: a multi-racial and multi-cultural Europe that should treat all its citizens equally, as an example of what can be done when nation-states lose their significance. The Moroccan national team is the result of a deliberate policy to recruit players in the diaspora, where they are part of the millions of descendants of Europeans from African origin. The French national team integrates in itself other children of these immigrant communities. One could think that the semifinal between Croatia and Argentina will be very different, between two proud nationalisms, but most if not almost all of their players also play in European teams (including just a few in Croatia), and have been living out of their countries since they were kids. The Argentinian superstar Leo Messi has lived more time in Barcelona than in Argentina. He has no plans to go back to live in his native country, but probably the national team provides him some valuable emotional services.

Gordon Brown's federalist proposal

In his article “Think our plan to fix British politics is a pipe dream? Think again”in The Guardian, former British Prime Minister Gordon Brown links very well two lines of reform that are usually presented as separate: economic policy reform and institutional governance reform. Instead, he rightly argues that the two must go together. Policy reforms to have a more inclusive society will not be successful unless government is adapted to a multi-level interconnected democracy where tax and regulatory competition is stopped. And abstract institutional reforms will not be supported by the voting public, unless they translate into improvements in the standards of living.

Here are some paragraphs from his article: “we need to change who governs but we also need to change the way we are governed. And to bridge the gap between the Britain we are and the Britain that we can become, the Commission on the UK’s Future, which reported to Keir Starmer this week, is demanding a new economic and political settlement to ditch a century of centralisation, end the over-concentration of power in Westminster and call time on the long era of “the man in Whitehall knows best”.

“... a tale as old as time that constitutional commissions take minutes and waste years, only to see their reports written off within seconds of publication. With good reason. They usually fixate on abstract, out-of-touch, legalistic remedies, at the expense of addressing the everyday lives and challenges faced by ordinary citizens fed up with poor government.”

“... in order to build economic prosperity across the United Kingdom and alleviate fast-rising poverty, political reform is a necessity. Any economic plan will fail unless the right powers are in the right places in the hands of the right people. The goal of an irreversible transfer of wealth, income and opportunity to working families across the United Kingdom is dependent upon the irreversible transfer of political power closer to the people. The two go together.”

“... doubling growth, increasing productivity and creating the new well-paid jobs of the future will not come from trying to win a race to the bottom to attract low-paying jobs from abroad”

“The mayors and local authority economic partnerships will oversee local bus and train services, as well as planning and housing. We will revamp the British Business Bank with a mandate to end the long-term equity shortage faced by growing firms in the regions, and we propose to seek joint ventures with the European Investment Bank, among a series of measures, to invest in local infrastructure.”

“... we must also prevent the wrong powers from being hoarded in the wrong places. Because past devolution programmes have left the centre unreformed, a new Britain needs a new Westminster and a new Whitehall.” The federalist plans are therefore complemented with proposals to clean up politics, to make government more transparent and less corrupt.

Although Gordon Brown proposals have the UK in mind, his arguments are of more general interest. The nation state and the emergence of market capitalism were not two orthogonal developments. The Westfalian nation-state as we know it today was one of the institutional innovations that emerged to consolidate markets and provide the large scale law and order aparatus that could sustain the Industrial Revolution.

Similarly, today we need an organization of democratic sovereignty that is adapted to and inter-dependent economy in a globalized world in the twenty-first century.

Everybody else is a hypocrite (World Cup edition)

In the last issue of The Economist there are some very interesting articles about the World Cup. One of them reports that there is an increasing number of autocratic organizers because democracies realize big sports events have more social costs than social benefits and vote against them.

Of the three corners of Rodrik’s trilemma (hyperglobalization, democracy and national sovereignty), the Qatar World Cup illustrates the consequences of removing democracy, but keeping national sovereignty and hyperglobalization: autocratic powers competing for resources, in this case the right to organize an event of global impact with huge demand and propaganda potential.

Prestigious media outlets such as The Economist or the Financial Times have made an effort to still provide a rationale not to boycott this World Cup. The Economist’s editorial ends asking ironically if we should rotate the tournament among the 3 nordic countries that have an absolute clean record of respect for human rights (why not?). Others have argued that in Argentina 1978 the World Cup threw light on a brutal dictatorship and contributed to its decline. But the same did not happen with Berlin 1936 or with the World Cup or the Winter Olympics in Putin’s Russia.

With less style, the President of FIFA, Infantino said that “we Europeans should apologize the next 3000 years for what we have done in the past 3000 years,” after saying that he was proud of the FIFA badge he was wearing and saying that he was not responsible for things that were decided 12 years ago, and now we have to make the best of it (although he is presiding over the same corrupt structure that gave the event to Qatar, the one that has decided that the next World Cup will have 48 teams instead of the current 32: more teams, more games, bigger deals). 

The dark side of soccer is explained by its success. Without the magnitude that the show has acquired in a world that lacks a global government, there would be no large-scale corruption, nor would there be bribed officials, nor the opportunistic magnates, nor the advisers who lead athletes to show up in tax fraud and tax havens scandals. Soccer is the most globalized and unified sport. FIFA is the gatekeeper of a global asset in an ungoverned world, and this privileged position is guaranteed by its ownership of the World Cup, the most successful competition, the one in which the best soccer players in the world star in different teams for a month, with a much higher level of equality and uncertainty than in club competitions. 

If someone dares to bypass the power of FIFA, it threatens the brave with leaving them without playing in a World Cup. As argued by Milanovic some time ago, the rules of soccer between national teams, where basically each player can only participate in one national team in his entire career, without transfers of players between national teams, combined with the mobility of players between clubs (which make it easier for the best players from whatever country they are, to play in the best clubs in Europe, that is, in the world), have led to much equalization among national teams, and to raise their level. As Kuper and Szymanski say, in the World Cup edition of their famous book "Soccernomics", far from being in a bubble, the world of soccer continues in a process of solid expansion, reaching more people who are fond of and passionate about this sport, perhaps in the absence of other challenges. 

In 2015, as shown in Netflix’  documentary "FIFA Uncovered," several FIFA executives were arrested by the Swiss police on the orders of the FBI, accused of corruption and of being part of organized crime. Among those affected there were officials from various continents. The very decision to assign the World Cup to Qatar was surrounded by accusations of bribery. 

Holding the World Cup in Qatar has at least had the virtue of triggering a debate about what fans and athletes can do to protest something so complementary to corruption, such as the involvement in sport of autocratic countries (like Qatar -certainly not the only one, and not the worst), whose leaders take advantage of soccer to launder their crimes and their reputation as human rights abusers. The debate on the sportswashing phenomenon has reached the pages of prestigious media. 

Several voices have suggested that a requirement to have the opportunity to organize a major sporting event, and the publicity that this allows, should be an impeccable record of respect for human rights. Amnesty International has demanded that FIFA should at least create a fund to compensate the families of immigrants who died in Qatar's World Cup construction sites, although it would be difficult to agree on the figures, among the three officially recognized by the Qatari government, and the thousands denounced by The Guardian newspaper. The players of the Australian team released a video joining the pro-human rights demands, and ten teams (eight of them at the time of writing this text, playing in Qatar) have joined a campaign in which their captains will wear an armband in defense of the rights of people from the LGTBQ+ community. Some coaches known for their few diplomatic qualms, such as the Dutchman Louis Van Gaal, have raised eyebrows about holding the event in Qatar. 

Many of us will not have the willpower to join a fan strike. It is not possible -at least to me- to disguise this weakness behind ethical arguments.