Wanderings around London from Embankment to Trafalgar Square

Facing political & economic turbulence, it can be useful to stop and smell the tulips

Fuelled by various political developments, the past few months have been a turbulent time in the global economy. Q4TK suffered a bit of neglect and indeed a bit of uncertainty as your correspondent sought to make sense of the situation. Reason, facts, and the normal analytical tools employed by the economics profession are being challenged. We economists are struggling to face up to the new populism evident in various parts of the globe. At the same time, most of us do recognise that some folks have legitimate grievances that need to be addressed.

Wanderings around London

And, so, today, I’m bringing you a few photos from my Wanderings around London from Embankment to Trafalgar Square. On Saturday, I decided to set aside my charts and tables. I simply walked out into the unfamiliar London spring warmth and sunshine. London was radiant as my spouse and I headed into the great metropolis. The parks and gardens bloomed in full glory. The area around Embankment was filled with folks spilling out to take a look around and soak it all in.

There were drum circles protesting tow path closures. Folks from a brewery gave out free beer samples. Small clumps of people sat on blankets enjoying picnics and glasses of wine. Tourists visited the key sights. Locals stopped to admire the flowers. Your correspondent used the occasion to stop and ponder whatever caught his fancy, except work. The tulips were in full bloom. But, I resisted the impulse to ponder the Dutch tulip mania, a time of price inflation and collapse in the 1600s. Rather, I stopped and enjoyed their fragrance.

A river of tulips in Embankment Gardens

A river of tulips in Embankment Gardens, seen on our wanderings around London

Still, economics can be hard to escape. For example, in the gardens at Embankment there is a fountain dedicated to Henry Fawcett. Henry was a blind economist who campaigned in the mid-19th century on behalf of women’s right to vote. The fountain says it was erected by his fellow countrywomen in his memory. During the struggle, he was moved to propose to a woman who he had met in the campaigns. But, after her polite negative response (she was pursuing her medical studies), he eventually married her sister.

Renewal accomplished

After a great lunch at Barrafina in Adelaide Street (very much a place in pursuit of no-frills excellence and highly recommended), the wandering led us to the National Gallery. This museum is architecturally gorgeous and the collection is world class.

As the day drifted into evening, it was time to head home. Every once in a while, a day like this is required. It has a spiritual value, refreshes the mind, and helps to restore the inner strength needed in the quest for truth and knowledge.

Note: The gallery below is annotated. Click on the up or down arrows under the thumbnail display in order to see the notes and see additional pictures.

London 8 April 2017 - from National Gallery to Embankment

A few photos from our Saturday wanderings around central London from Embankment to Trafalgar Square and the National Gallery and back

[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_national-gallery-peekachu-people-and-a-pigeon.jpg]70National Gallery, Peekachu people and a pigeon
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_national-gallery-entrance.jpg]70National Gallery entrance
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_whistlejacket-by-george-stubbs-1762.jpg]70Whistlejacket by George Stubbs, 1762
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_national-gallery-marble-floor.jpg]60National Gallery marble floor
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_national-gallery-wonderful-floor-grates.jpg]70National Gallery - Wonderful floor grates
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_cellphone-art.jpg]90Cellphone art?
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_trafalgar.jpg]60Trafalgar Square looking towards Westminster
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_a-crowd-of-busses-heads-down-whitehall-to-big-ben.jpg]70A crowd of buses heads down Whitehall to Big Ben
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_cleary-gardens-london-loire-valley-grape-vines.jpg]60Cleary Gardens London - Loire Valley Grape Vines
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_a-half-pint-of-badger-bitter-at-the-ship-and-shovell.jpg]60A half pint of Badger Bitter at the Ship and Shovell
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_a-river-of-tulips-in-embankment-gardens.jpg]60A river of tulips in Embankment Gardens
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_embankment-gardens-wildlife.jpg]60Embankment gardens wildlife?
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_robert-raikes-founder-of-sunday-schools.jpg]60Robert Raikes - Founder of Sunday Schools
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_henry-fawcett-a-blind-economist-campaigned-for-womens-suffrage-in-1800s.jpg]60Henry Fawcett - A blind economist campaigned for women's suffrage in 1800s
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_a-cow-in-garden-of-two-temple-place.jpg]60A cow in the garden of Two Temple Place
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_amb-benjamin-franklin-lived-here.jpg]60Amb Benjamin Franklin lived here
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_a-really-big-crane.jpg]60A really big crane
[img src=http://www.q4tk.com/wp-content/flagallery/london-8-april-2017-from-national-gallery-to-embankment/thumbs/thumbs_looking-out-from-the-roof-of-my-bathroom-greenwich.jpg]60Looking out from the roof of my bathroom - Greenwich

 

Tony Judt’s commentary on economic and social stresses

In cleaning out old papers in my home office, I just rediscovered a great book review from Tony Judt, his critique of Robert Reich’s Supercapitalism. Penned for publication in December 2007, Tony diagnosed developing economic and social stresses. He foresaw that the conditions then present could not endure indefinitely. Sadly, he was right. The financial crisis of 2007 morphed into the Great Recession. There followed a period of slow growth and increasing political tension in the advanced economies. Social cohesion weakened as inequalities deepened. Perhaps not suprisingly, many voters became more receptive to suggestions for radical solutions challenging the established order. And, then 2016 happened: Brexit, Trump, and nationalist political turbulence in the EU, among other developments.

Economic and social stresses, plus elements of a solution

Already in 2007, Judt suggested that we act to head off the emerging stresses. He noted that there were important lessons from an earlier time of economic uncertainty in the 20th century. Referring to those living a few generations ago, Judt says,

“We may discover, as they did, that the universal provision of social services and some restriction upon inequalities of income and wealth are important economic variables in themselves, furnishing the necessary public cohesion and political confidence for a sustained prosperity — and that only the state has the resources and the authority to provide those services and enforce those restrictions in our collective name. […] We may find that a healthy democracy far from being threatened by the regulatory state, actually depends upon it: that in a world increasingly polarized between insecure individuals and unregulated global forces, the legitimate authority of the democratic state may be the best kind of intermediate institution that we can devise.”

Judt contrasted such a model with the alternative presumably being rolled out in the US as of 2007. The alternative included untrammelled economic freedom, accompanied by fear and insecurity, reduced social provision and economic regulation. It also included “ever-extending governmental oversight of communication, movement, and opinion.” While history had shown the advantages of balanced, market-oriented economic policies, the alternative approach failed to recognise the importance of social objectives in the successful operation of those policies. Even free markets need an appropriate rule book to ensure optimal outcomes for society as a whole.

Peering into 2017

As the year 2016 grinds to a close, I look out from the top of Greenwich Park hill with some trepidation. Economic and social stresses remain clearly evident. Unfortunately, Judt passed away in 2010 and is not here to update his assessment. I would love to hear his lessons from 2016.

Reflecting on the prospects for 2017, it seems clear that part of the solution should include Judt’s steps to improve social cohesion. Support for those dislocated by globalisation and technological change is needed. This might improve the chances to pursue successfully a more balanced and coherent approach to economic policy. As demonstrated by some Scandinavian countries in recent years, availability of such support can help to reduce the resistance to a positive, market-oriented reform agenda.

It may be that some positive, piecemeal actions are taken due to the current populist political movements in the US or EU. But, these are unlikely to prove adequate. We need more a more coherent, systemic approach. A first step might be to shift the objective from simply protecting what we already have. Why not set a more ambitious target of broad-based, increasing economic prosperity? A more inclusive and open economic strategy, including adequate social protection and improved educational opportunities, might take us further. By better mobilising the full economic potential of society, we improve our chances for improved future well-being.

Reference: Tony Judt, 6 December 2007, “The Wrecking Ball of Innovation”, in The New York Review of Books, Vol. 54, No. 19, a review of “Supercapitalism: The Transformation of Business, Democracy, and Everyday Life”, by Robert B. Reich; http://www.nybooks.com/articles/2007/12/06/the-wrecking-ball-of-innovation/ .

The view from Greenwich Park, London

The view from Greenwich Park, London

America: Don’t give up on the Trans-Pacific Partnership (TPP)

Look before you leap away from TPP

My fellow Americans, this is for you. Before the American people get all happy about the demise of the Trans-Pacific Partnership (TPP), I think you should look at it. I have studied it pretty carefully and read several hundred pages, skimming other bits and examined the economic literature on it. I have a couple of my own peer-reviewed studies on it. And here is what I see…

A high standards agreement

TPP is a high standards agreement that levels the playing field for American workers and businesses in a number of ways. It has a chapter to ensure enforceable (!) worker rights based on high international standards. TPP’s chapter on protection of the environment includes action-oriented provisions and also requires protection against trade in endangered species. TPP protects the free flow of data and openness of the internet with respect to trade including e-commerce. It makes clear the rights to fair use of copyright protected materials to keep information free for education or research purposes. The agreement improves protection for business confidential information. It keeps digital trade free from duties. And, a side agreement addresses concerns about currency manipulation.

A diverse group of reform-minded trade partners

The TPP agreement covers the US and 11 partners around the Pacific Basin, based on such high standards. It creates an alternative model for trade that prevents beggar-thy-neighbour policies and averages standards upwards. It covers developing countries like Vietnam, Malaysia, or Peru, and offers them a chance to play by US and free and fair market rules rather than taking a race-to-the-bottom approach. Even among the developed countries like Canada, Japan, Singapore, Australia and New Zealand, as well as countries like Brunei, Chile and Mexico, it better aligns standards and regulations with those of the US. These countries have reached out and committed to an open, high standards relationship with America.

TPP is a win-win scenario

If we throw the TPP out the window, we will jettison at least a few percent of US economic growth (probably more than that over time). But, worse, we will leave the Pacific partners with few options but to look for another approach. And that means a less favourable world for all 12 countries, with a less level playing field for America. And, one thing we have learned from our history is that isolationist policies and pure nationalism do not protect us. Rather they leave us worse off and with fewer resources to look after ourselves. Why should we turn down this win-win TPP trade agreement, settling for a less prosperous future and a world turned away from the United States? That is not in our own interest, folks. (Nor that of our trade partners).

Take a look and get the facts before rejecting the TPP!

Hanoi traffic

Hanoi traffic: Will it be with us or will we veer  off the TPP road?

In politics, lies matter. That’s a fact. And we all may pay the price.

Are lies a political reality?

In a sign of the times, on 10 September 2016, the Economist published a lead article entitled the “Art of the lie“. Taking stock of the level of political discourse in the United States’ presidential election season and the United Kingdom’s Brexit debates, the Economist sums up the situation as a time of “post-truth politics”. In this era, the emphasis is on feelings and reinforcement of prejudices rather than facts. Assertions of what one feels should be true replace reality. Lies have become a more important feature of the political scene.

This distortion of reality is not a trivial matter, especially when it is manifest in leaders of nations. Incorrect information is a threat to the quest for truth and knowledge. But, the damage does not stop with impairment to one’s understanding of reality.

Promises, promises

A review of the academic literature on campaign promises posted on the web site FiveThirtyEight found that in fact politicians do behave in a consequent manner. In a majority of instances, once elected they do strive to attain their promised objectives. Politicians in the United States act to deliver on about two-thirds of their promises. In the United Kingdom, governments control both the legislative and executive branches (ie, a parliamentary system). There, the rate of follow through is more than 80%. Similar patterns were found in countries as diverse as Canada, Greece or the Netherlands.

False perceptions of reality can have tangible impacts in the direction of government. This poses risks to the economy, education, health, security and the other domains covered in  public policy. Whether in democracies or authoritarian governments, it is not in the public interest for governments to set off in a wrong-headed direction. Real damage is done.

Bad choices

A recent essay by the Harvard economist Ricardo Hausmann, Through the Venezuelan Looking Glass, assesses why it is that nations engage in such self-defeating behaviour. In a nutshell, he points to dysfunctional belief systems.

Justice, at the entrance to the World Trade Organization in Geneva

Justice, by Luc Jaggi, 1925

 

Significant portions of a society may align on sets of beliefs that are not in line with reality. They do not reflect the facts. Damaging political decisions may follow. Hausmann cites the example of the Salem witch trials (1692-1693). He notes that if one believes in the Devil and thinks that Satan can take over women’s souls, then it may be reasonable public policy to hang those accused of witchcraft. On the other hand, in reality, such policy is incomprehensible to most folks.

Just the facts

As Hausmann puts it, “Politics is about the representation and evolution of alternative belief systems.” In setting the priorities for a society, there are a range of reasonable competing possibilities. There is ample room for debate on different options and approaches to improving our welfare. While science has a clear role to play, there is also a subjective element and preferences may vary among people. But, if the starting point is not even based in reality, then it becomes more difficult to make a viable choice and achieve tangible progress. Indeed, it can all end quite badly. One need look no further than the witches of Salem.

The Amazing (Generally) French Highway System

The French Highway System: A Road to Somewhere

Occasionally, the French find interesting market-oriented ways to deal with strategic challenges. Sometimes they arrive at a capitalist destination in a manner that was not necessarily part of the original plan. A fine example of this is the amazing (generally) French highway system.

Capitalist tendencies

The Normandie Bridge over the Seine near Le Havre
The Normandie Bridge over the Seine near Le Havre (Credit: Pecold / Shutterstock.com)

The autoroute system was established under the direction of the state, which granted concessions to state firms to build specific sections. These firms were largely privatised in recent decades, in some cases with substantial portions of the shares winding up in the hands of institutional investors, employees and small investors. Nowadays, these privatised firms and some emerging competitors from the private sector operate most of the long-haul sections of the system as toll roads. The tolls are generally based on distance travelled and the rates are fairly high compared to what toll roads charge in some countries such as the United States. Only in urban areas and Brittany, do the main highways generally remain in state hands with mostly toll-free operation.

My way is the highway

The amazing thing is that the intercity portion of the system works very well. Despite the heavy presence of the state in the French economy, somehow the government hit upon the right idea of exploiting a market-based solution to further the development and operation of the highway system.

Across most of the intercity network, the roadbed is generally well maintained with wide shoulders. With a legal speed limit of 130 km per hour (80 mph) outside of built-up areas, it is easy to cover distance quickly. Capacity is generally adequate except during peak travel seasons (though, admittedly, traffic can be periodically heavy at other times as well).

Rest stop on way to Nantes

Rest stop on way to Nantes – Accommodations in a non-commercial rest area

There are rest areas every 15 kilometers (10 miles) or so. Many of the rest areas are quiet, non-commercial parks with restrooms, telephones, picnic tables, playgrounds and space to walk dogs. The accommodations in the non-commercial rest areas are basic with unheated restrooms and no hot water. Others areas, at less frequent intervals, are more standard car and truck stops with gas stations and restaurants, heat and hot water.

Yay, infrastructure!

The investment in infrastructure is quite impressive, often implemented with architectural flair. A fine example is the Normandy Bridge across the Seine near La Havre. The various installations are often accented with splashes of color. In some places, there are engineering marvels like the new tunnel in the outer beltway around Paris. With little disruption on the surface, the tunnel cuts under a dense urban area as well as parkland. Built by the construction firm and highway operator Vinci as a toll road, the tunnel uses a duplex approach with North- and Southbound lanes stacked on top of each other in a large tube. The result of such investment is reduced travel time and improved quality of life, all while making a contribution to stimulate the economy.

Beautifully bucolic

View from the wetlands of a rest stop in Picardie

A view of lush farmland, looking across a wetland built into the landscaping of a highway rest area in Picardie

The highways offer an excellent option for exploring the gorgeous French countryside. But, even along the roadway the landscaping is attractive with occasional sculptures and special plantings, and no billboards. As in most countries, the French urban road network may be stressful and challenging to drivers, but out here in the countryside it often feels like one is driving through a postcard setting. Indeed, when travelling across France it pays to budget a bit of extra time for a foray or two off the main road. A surprising number of temptations are situated along the highways, ranging from vineyards to splendid natural sites, from historic monuments to gastronomic wonders.

Conclusion: Time for a Road Trip?

The French highway system is a confirmation that public-private collaboration can indeed make a positive contribution to quality of life. While a country road, less-travelled, can offer many charms and attractions in France, the highway travel to the start of the country road may also be a worthwhile part of the experience (particularly if you plan ahead to avoid peak travel seasons and heavily-utilised routes). Could it be time to hit the road?

 

Mission to Planet DC

Planet DC

National Zoo Sign

Washington: A National Zoo?

There is something other-worldly about Washington. Power, wealth, poverty, urgency and complacency are in the air. It is disorienting, amazing, distressing. I got a chance to experience this world up close in July thanks to a month-long mission to Planet DC.

Although I travel there often, this was my first extended visit to the city in a couple of decades: a chance to settle in, observe and swim in the sea of local life. It left me in a funk that has continued after my return to Paris. I am still trying to process all that I saw and experienced.

My mission

During July, I had the opportunity to pursue my economic research agenda in Washington, DC, operating as a visiting scholar based at a Federal government agency. I was struck by the dedication and competence of my colleagues there as they pursued their duties.

They believe in their mission and are seeking to improve policies and government operations. In the same spirit, they generously took time to provide me with constructive input and suggestions for advancing my policy research.

Time and again their positive energy amazed me. Theirs is not always an easy lot. Federal employees encounter many daily challenges including consequences of budget cuts, periodically hostile press and politicians, arbitrarily compromised objectives, and stakeholder conflicts, among others issues.

My agenda involved a series of interviews with experts (government, private sector and academic), collection of data, and research to track down various reference materials. I had the opportunity to travel far and wide across the city and to meet folks from various walks of life. To say the least, the city exhibits quite some cultural and economic diversity.

Quest for excellence

As a young Peace Corps volunteer in Burkina Faso (West Africa) broiling under the intense mid-day sun of the hot season, I discovered the joys of pulling up a chair in a shady spot outside of our mud hut and reading. Not much else was going to happen until things cooled off. It was during such a season back in 1983 that I found the time to read Robert Pirsig’s Zen and the Art of Motorcycle Maintenance. I had never read anything like it. The book describes a motorcycle trip across the United States and an inquiry about values. A central theme for me concerned the importance of the quest for excellence, a message that has stuck with me since.

As the political capital of the largest national economy in the world, Washington is certainly in the position to cultivate excellence. There are some impressive manifestations of this. To cite a couple of examples from my recent mission:

  • Library of Congress – During the course of my research I had the opportunity to visit the Library of Congress, which is certainly a fine historical example. The Thomas Jefferson Building (1897) is a world-class architectural gem. I witnessed people from around the world gawking at the grandeur of reading room. Moreover, the collection itself is also extremely impressive. I took advantage of this to track down references that I’d been unable to obtain in Europe.
  • US Botanic Garden – A more recent example of such excellence is the renovation of the US Botanic Garden, which included establishment of the adjacent national garden. The US Botanic Garden, originally established in 1820, is just up Independence Avenue from the Capital Building and Library of Congress. The renovation of the greenhouse, a Bartholdi fountain (Bartholdi also sculpted the Statue of Liberty), and gardens greatly moved me. Completed in the past decade, this effort resulted in a facility that provides for education, art, entertainment and, in my view, spiritual renewal. It is a place of beauty and yet somehow the renewal was accomplished in a time of tight budgets and partisan in-fighting.

Of course there are many, many more examples across the city. Such examples demonstrate that there can be a positive role for government in contributing to our advancement directly or in partnership with the private sector and non-governmental organisations.

But, on the other hand…

Despite encounters with excellence as I wandered through the world of Washington, there were nonetheless some concerns nagging at me everywhere in the background. These concerns started with the impression that part of the infrastructure is in poor condition. They grew as various contacts and news items pointed to social challenges, civil rights issues, undue impediments to legitimate businesses, environmental degradation and other pressing issues. Some are local, while others are a reflection of national malaise. Although Washington came through the Great Recession with less damage than some other parts of the US, it is not fully insulated and the challenges are visible.

Storm Clouds over the Old Executive Office Building

Storm Clouds over the Old Executive Office Building

My concerns deepened after an admonition from my host to be careful during my commutes into town. He had been stabbed in a mugging a while ago and held up at gunpoint another time. As an economist I am concerned with such problems and their many social and economic roots, but I am not used to facing them as a personal threat on a daily basis.

Then, there was the metro. I recalled the system with an initial sense of pride, thinking back to my days in DC during the 1980s. Nowadays, however, it is only just getting a much needed makeover after years of relative neglect. In July, during a brutal 10 day heat spell, I discovered that the system operators were no longer maintaining the air conditioning on the cars where it had broken down. Commuters were faced with the choice of running from car to car in search of A/C or potentially having to tough it out in a crowded, non-air conditioned carriage.

Next came political issues. A few weeks after my arrival, Bill Moyer’s had an interesting show on Washington, DC, based on a very troubling interview with Mark Leibovich. Leibovich recently authored “This Town“, a book about the workings of the place. He highlights the problem of the rotating door in DC between policy making and lobbying, political fund-raising and interest peddling. He highlights what is essentially a disconnect between the objectives of many of the powers-that-be and the national interest. The insiders with ties to either of the main political parties have access to potentially large incomes if they work on behalf of various vested interest groups. Thus, there are disincentives to tackle issues head-on. Unfortunately, in the interview Leibovich does not offer much in the way of solutions.

Partly as a consequence of the insiders game, progress to obvious problems comes slowly. Outside of the political realm, I have the impression that many average folks are hunkered down living busy lives and, in many cases, dealing with some financial stress. Several news items came up during my stay that underscored the problem. One item showed labor income declining as a share of national output while inequality increased:   see this article from the Federal Reserve Bank in Cleveland. After progressing somewhat in the 1990s, median household has been falling significantly. Another item came from a study by the Economic Policy Institute, showing US workers putting in more hours in a effort to maintain incomes. Then, more recently, Robert Putnam presented an op ed on Crumbling American Dreams using his home town as an illustration.

There were other national news items that added to the gloom:

  • US Health – Recently, a spreadsheet from the Organsation for Economic Co-operation and Development (OECD) caught my eye: OECD Health Data. New data on health developments in 34 wealthy countries of the world were just released. The United States was at the top of the list for healthcare expenditure, spending some 17.7% of GDP in 2011 (GDP is an indicator of our economic output). This was nearly twice the health expenditure in OECD countries on average: 9.3% of GDP. Moreover, US healthcare expenditure is far ahead of the other countries: second place goes to Netherlands, but even they spent just 11.9% of GDP.
    What do we get for our large expenditure? In 2011, American women on average at birth have a life expectancy of 81.1 years, whereas in the average OECD country, women can expect 82.8 years. For American men, the figure was 76.3 years, whereas the average OECD country offered its men the prospect of a life expectancy of 77.3 years. In Netherlands, women and men at least have something to show for their above-average health expenditure. That is, they have above-average life expectancy: 83.1 years for women and 79.4 for men. In the US, we are paying nearly twice as much as the OECD average and our lives on average are shorter by a year or more.
  • Climate change – Then, there were several items on climate change developments. One that really came as a wake up call was authored by James Hansen et al (2013) on Climate Sensitivity, Sea Level and CO2. The authors provide compelling evidence that the damage from the C02 already pumped into the atmosphere is not yet fully manifest due to lagging responses from some natural systems, and that if we continue we can expect significant impacts in terms of sea level rise and disequilibrium in key natural systems. According to these authors, if we persist in use of all available fossil fuels, we can expect this: “Burning all fossil fuels, we conclude, would make much of the planet uninhabitable by humans, thus calling into question strategies that emphasize adaptation to climate change.”
  • Voting Rights – There were other news items from several states on voter disenfranchisement in the aftermath of the Supreme Court’s invalidation of a key portion of the Voting Rights Act. Taking North Carolina as an example, the Huffington Post reported on proposed changes that eliminated college students’ ability to use their state-issued student IDs for voting purposes, reduced early voting by a week, eliminated same-day registration, ended pre-registration for 16- and 17-year-olds and a student civics program, killed an annual state-sponsored voter registration drive and lessened the amount of public reporting required for so-called dark money groups, also known as 501(c)(4)s.
  • Impediments to business – It is not all a bed of roses for business either. There are bureaucratic and regulatory barriers and other challenges related to government dysfunction. One example can be found in the World Bank’s Doing Business Indicators.  The “paying tax” indicator shows that the administrative burdens in the United States are far in excess of other leading countries (and, it is not just the tax rates, but also the hours it takes to comply administratively with the requirements). According to this tax burden indicator, the United States ranks 69th among the world economies, just below Madagascar and just ahead of Mongolia. Hardly a leadership position!

These matters are serious and getting clear information about each issue is not always easy. One cannot rely on the evening news for balanced reporting and it takes a bit of digging to identify a reliable source of factual information. Still, the cumulative effect of this news flow is daunting. I can certainly appreciate the urge to keep one’s head down and to press on with more immediate daily challenges. Unfortunately, a failure to respond to some of these issues will entail heavier costs if one waits to address them later.

Next steps?

This is not to say that I am pessimistic. I was encouraged to find people inside and outside of government working to assess problems empirically and seeking a factual basis for discussing policy options and responses. In addition, there is an emerging debate in the United States that recognises the limits of empirical assessment and the need to have an open debate about the subjective aspects of some policy questions such as dealing with inequality. For example, see this paper on income inequality by G. Mankiw, a former Bush administration official. I don’t agree with all of his suppositions or conclusions, but it is a useful starting point recognising the role of preferences. It has unleashed a helpful debate.

I think we also need to be open to consideration of the role of government as part of the solution. This was underscored to me upon my return to France. I spent my Saturday here running errands on foot, using public transportation and walking to shops past some wonderful public spaces: a forest park, a new fountain, newly repaved roads, and a public-private redevelopment zone downtown. France has many economic problems of its own. For example, the state is large and weighs heavily on entrepreneurship. But, the French example does underscore the benefits of having some public investment in areas where there is a need for a coherent system-wide plan or where there is a market failure. We should not rule this out now in the United States. There are positive examples in the US as well: for example, the initial development steps for the Internet. Government has contributed on occasion to attainment of excellence!

Reviewing the list of issues discussed above, I certainly seems that there is need for action. In the United States, we need to break out of our complacency. We need to challenge the system to do better and to be more responsive to unmet needs. We should not accept business as usual in “This Town”. And, once we have decided that there is a role for government in provision of a given service, then we should insist on government’s quest for excellence in the matter. Why should we the citizens and taxpayers accept anything less?

 

 

RIP: Albert Hirschman Exits

Exit, Voice and Loyalty

Some 20 years ago I was working with a Russian colleague to assess labor market developments in Russian enterprises during the economic transition. As these firms struggled in the face of a transition to a market economy, I was struggling to get a handle on the behavior of their management, workers and consumers. Then, my co-author pointed me to Exit, Voice and Loyalty, a little book by the economist Albert Hirschman.

Published back in 1970, Hirschman’s book offered a succinct and nuanced view of human interaction in economics and politics. Economics, in particular, had tended to oversimplify decision-making, emphasizing the role of price in driving choices of consumers, managers, suppliers and others. The decision to buy or sell was mainly seen as being driven by price. But, Hirschman took note of other factors that may on occasion cause some stickiness in the way the market functions.

Consumers, for example, may demonstrate loyalty in the face of declining quality in a product and, instead of switching, may agitate for management to fix the problems. Workers in a failing firm may speak up for reforms instead of simply quitting. Members of political parties may lobby for change within, rather than changing their allegiance to a rival party. On the other hand, in other cases, these folks might simply break the existing relationship and move on. Using engaging illustrations and clear explanations, Hirschman noted conditions that may shape the paths that such decision-making might take.

Hirschman’s optimism and clear writing style made Exit, Voice and Loyalty a pleasure to read. Discovering the analytical framework laid out in the book was a real eye-opener for me. It helped me to tackle the confusing situation in the Russian enterprises that we were studying. Here is one illustration: Back in the mid-1990s, why would so many Russian workers stay on with their employers, despite being unpaid for months? Answer: They still reaped some social and economic benefits from their affiliation, like housing or healthcare. Outside of the firms, conditions could be even worse for these individuals.

Hirschman’s analytical framework also had many other applications for me. Suddenly, I found a new means to assess, for example, my own difficult employment situation at the time or to ponder the political developments in my country. From time to time I still make reference to this book, which is now more than 40 years old.

Thus, it was with some sorrow that I learned last December that Albert Hirschman had passed away. Aged 97, he had lived a long and fruitful life. Hirschman made other contributions to economics, in particular with respect to challenges of economic development in Latin America. But, it was only upon reading his obituary that I learned of his other impressive  accomplishments.

And here is the amazing part

According to the New York Times obit, Albert Hirschman was born in Berlin in 1915 and by the 1930s had advanced in his study of economics. However, he also made time to join in the Spanish civil war on the side of the anti-fascists. He later joined the French Army to resist the Nazis. After France fell, he worked as part of a team helping people escape via routes over the Pyrenees. He then made his way to the United States and joined the Office of Strategic Services to assist the US army in North Africa and Italy, as well as to serve during an early war crimes trial. And that was all before he moved to Bogota, Colombia, as an economic adviser for a few years and then launched a 30 year academic career at Yale, Colombia and Harvard.

Wow! A full life indeed! Thank you, Albert Hirschman. May you rest in peace.

US Exports and Jobs

How many workers does it take to produce each USD 1 billion of exports?

Here is a positive story concerning US exports and jobs: a new report from the US Dept of Commerce shows exports expanding while also having a positive relationship to certain labour market indicators. (The assessment uses an employment requirements analysis to document the labor intensity of US exports.)

According to the report, US manufacturing has steadily become more productive with respect to exports. Producing US 1 billion in merchandise exports now requires far fewer workers than in 1993:

1993: 14050 workers per USD 1 billion exports
2010: 6115 workers per USD 1 billion exports

This rising productivity contributes toward making US manufacturing more competitive internationally. Thus, it is perhaps not surprising that US exports of goods are rising. And, they are doing so at such a pace that they are supporting an expanding number of jobs. Export-supported employment has varied quite a bit from year to year, but from endpoint to endpoint of the Department of Commerce study some 500,000 jobs were added:

1993: 6.1 million export supported jobs
2010: 6.6 million export supported jobs

Agricultural employment is also benefitting from exports. More and more jobs in the sector are supported by exports. In 2010, some 23.3% of jobs in agriculture were linked to exports. In 1993 it was just 15.3%. The service sector is also showing increased reliance on exports.

While export-supported employment levels have fluctuated, the indicators for export growth and labor productivity improvement are exhibiting clear, positive long-term trends. This is good news for the US economy.

All-in-all, the Commerce report provides a useful contribution to shedding some light on these US export and labour market developments. For an encore, it would be great to have a corresponding report on imports. (It is interesting to note that rising US imports of key inputs are contributing to part of the manufacturing productivity gains discussed above.)

What are the implications?

The US economy is demonstrating a growing integration with the rest of the world. More of our output is going to foreign markets. The country continues to make products sought by customers around the world. We still have our trade mojo.

But, this does not mean we can take it for granted. More investment is needed in education and skills, infrastructure, better regulation, and other factors to promote a dynamic, innovative and competitive economy. The global economy is more open and competitive than ever and presents challenges as well as opportunities. Past success is no guarantee of future performance.

~~~~~~~~~~~~~~~~~~~

Rasmussen, Chris, and Martin Johnson (2012), Jobs Supported by Exports, 1993-2011, Office of Competition and Economic Analysis, US Department of Commerce, October
Link to the paper

CFR blog post on it

French capitalism is not dead!

French capitalism

Despite the kerfuffle over the new French government’s proposal to increase the top personal income tax rate to 75% and to nearly double the tax on dividends and other “unearned” income to 60%, France’s hard pressed capitalists persist. French capitalism is not dead!

France is home to many global brands from Michelin to Moet et Chandon, from L’Oreal to Total, among others. France’s multinational firms contribute substantially to the French economy, while operating in a tough regulatory and social environment. They succeed where many other firms in France fail. For example, unlike some neighboring countries like Germany, France has relatively few medium-sized firms.

Small investors in France

French Stock Exchange, Paris

Palais de Brongniart – French Stock Exchange, Paris
(Photo credit: ©ErickN, Shutterstock)

Similarly, France is home to a sizable number of individual investors. Something like 15% of the French population owns stock (compared to about 21% in the US). During the 1990s, there was an uptick in individual ownership of stocks associated with a series of privatizations of state holdings of firms like EADS (parent of Airbus) and Gas de France. Some shares were offered to residents of France at advantageous prices and some shares were reserved for employees of the enterprises. But, many other folks acquire shares via their employers, directly on the markets, or via investment clubs.

Actionaria

The large number of individuals holding stock was evident last weekend at the annual stock exchange exposition for small investors (Actionaria). This is a kind of trade show for companies listed on the French stock exchange to meet with shareholders, potential shareholders, journalists, job seekers and others. All sorts of people are there, from young job candidates, to seniors with retirement accounts, executives, small-investor club members and alternative lifestyle folks. But, the average age tends toward those with some grey hair. I guess I’m one of them. Most folks (including me) have just a modest amount of stock.

It is a festive atmosphere as folks wander about from booth to booth, talking with representatives from the various firms, gathering information, watching various demonstrations and video clips, collecting swag, and looking at sample products.This year, in view of the proposed tax reforms in France, there was also an atmosphere of solidarity.

I had an invitation from Michelin (as a shareholder) and a check list of other CAC 40 firms (French stock market index of the largest firms) that I wanted to contact: Vinci about construction markets, L’ Oreal about cosmetics, Societe Generale about banking, Air LIquide about industrial gases, GDF Suez about natural gas and Total about oil exploration. In speaking with various company representatives, one interesting common denominator was their enthusiasm about growth prospects elsewhere (not so much in France). Several enthused about the potential of emerging markets in Brazil, China, India, and South Africa, among other places. Some emphasized exciting technologies such as hydrogen powered cars, enhanced solar energy, on-line financial services or electric bicycles.

An interesting contrast with the US comes in the reporting requirements under the French regulatory regime. Shareholders generally have less say in the businesses and receive less detailed information than their US counterparts. They get the headline figures, but far less in terms of specifics. In some way this frees management to focus on long-term results (as evidenced by the evolution of the share price), but there are tradeoffs in terms of accountability and responsiveness to owners. Another contrast is in the social dimension of the enterprises. In France, there is much more discussion of the charitable and social works undertaken by the firms. And, there is much more personal outreach to shareholders via events, including out in the various regions of France.

Michelin shareholder meeting

My initial motivation in going was to attend a Michelin shareholder meeting. I’ve never been to such a meeting and was curious. Perhaps 500 investors turned up. The chief financial officer gave a rundown of the latest performance data and a senior executive handling innovation spoke about product development, but the star of the session was Jean-Dominique Senard, the president. He came across at first as a bit unassuming and affable, responding to wide-ranging questions and comments, which were non-technical and generally positive. But, he is clearly a master of his business and relations with the outside world. The President is clearly focused on the longer term and the positioning of the firm some 5 years out, rather than on quarter to quarter results. These are good things for long-term investors to see and hear.

The mood of the Michelin session was helped by the fact that the stock has beat the market average during the period since the global financial crisis. Michelin has also worked to improve its generally weak margins through innovation in tire structure (optimizing various parameters such as noise, energy efficiency, wet traction and dry traction among many others), increased focus on high-margin specialty products (like giant tires for mining vehicles), and investing in a big way in dynamic markets such as Brazil, China, India and the US.

There are also some interesting side projects such as a collapsible electric bike.  A few decades ago, much of Michelin’s rubber production was nationalized during the revolutions in South East Asia, so the company buys most of its rubber on international markets (it still produces some natural rubber on plantations in Brazil). In light of this, there is emphasis on development of synthetic rubber as an alternative (already something like a quarter of a tire’s composition is synthetic rubber, while old-fashioned rubber accounts for some 40%). One very cool innovation is the development of a wheel with all of the suspension, gearing and steering integrated inside. This saves on space in the car’s frame and can improve the overall efficiency.

The biggest reaction of shareholders at the Michelin meeting came when some in the audience asked what could be done about tax policies in France. The announced policies are perceived as penalizing investors and enterprises, despite some announced initiatives to improve competitiveness. The company officials sought to be somewhat diplomatic, but did note that the business environment had become more challenging. They noted that the government had indicated that it was concerned about competitiveness and sought to reduce labor and other costs, but this was far from yielding concrete results so far. There was a big round of applause to the expressions of concern.

Here’s to excellence!

I was grateful for the invitation to participate in the Actionaria exposition. It offered a unique window into an aspect of French life that one does not encounter in day-to-day life. I felt very welcome. It is great to see world-class businesses, to learn of innovation, and to hear of strategic orientations for French business. France is capable of business excellence and it is the interest of consumers and investors world-wide for this to continue!

Low-Cost Stimulus: Regulation and the US economy

Regulation and the US economy

As the US economy slowly recovers from the Great Recession while fiscal challenges still loom, one missing element in the discussion seems to be the potential to liberate economic potential via further regulatory reform. Regulatory reform is not a silver bullet solution, but it can deliver economy-wide medium to long-term benefits via improved performance of American business and government, all at a relatively low up-front cost.

US competitiveness

While the United States remains a dynamic and powerful economy, continued regulatory shortcomings in some areas are nonetheless contributing to a slow erosion of competitiveness. This is evident in several international indicators. For example:

  • The Fraser Institute compiles the annual Economic Freedom of the World index for 144 countries. The EFW index “measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of privately owned property.” According to the Fraser Institute, the US rank has declined from 3rd place during the 1980s and 1990s to 19th in 2010.
  • The World Bank maintains the Ease of Doing Business index focused more specifically on regulations as they affect business. In 2013, the index employed 11 sets of objective indicators and covered 185 economies. The United States has maintained a 4th place ranking by performing fairly well in most of the indicator sets, while many other countries were inconsistent (e.g., in some cases performing highly in some categories, but poorly in others). Nonetheless, when one looks into the underlying indicators there are some areas where US performance falls well below the top 10. For example, with respect to the challenges faced by a medium-sized business located in New York City, the indicators of regulatory burdens place the US at 22nd in terms of trading across borders, 25th in terms of registering property, and 69th in terms of paying taxes. The particularly low score with respect to paying taxes is associated with both administrative burdens and financial costs. With a ranking of 69th in this category, the United States places just below Madagascar (68) and just ahead of Mongolia (70).
  • The World Economic Forum maintains a Global Competitiveness Index, which is a structured inquiry that takes into account executive opinion of key dimensions of economic competitiveness in 144 economies around the world. The United States has slipped from 1st place in 2006-07 to 7th place in 2012-13 (though subsequently climbing up a few places). Business executives listed inefficient government bureaucracy, tax rates and tax regulation as the top three problems in this context.

International institutions are not only monitoring progress on regulatory issues. Quite a few concrete initiatives are underway to improve regulatory frameworks around the world. For example, the OECD conducts an active program to promote regulatory reform using approaches such as country reviews and development of tools for improving regulation (e.g., a regulatory impact assessment tool). Since 1999, OECD has completed 31 country reviews — including one for the United States in 1999 — to “assess how countries manage the design, adoption and implementation of regulations.”

What to do?

Appropriate regulation is an essential part of a modern economy. The regulatory framework provides rules of the game for business, non-profits, government and other economic institutions. When the rules are properly specified, they provide clear objectives for economic actors without unduly constraining freedom. And, businesses and others should be free to innovate and find efficient ways to attain the regulatory objectives (e.g. reduction of pollution, improvement of safety, facilitation of trade, among others). In striving for these objectives, care should be taken to avoid unnecessarily burdening economic actors, as that would risk gumming up the functioning of the economy.

The United States has succeeded in previous regulatory reform initiatives. For example, one of the significant economic achievements of the Clinton-Gore administration was a streamlining of government regulation. A consensus approach was employed in identifying areas where action would be helpful. According to the Clinton Presidential Center, during the Clinton-Gore tenure some 16,000 pages of regulation were eliminated and 31,000 pages of regulation were redrafted in plain English. Some 640,000 pages of internal government agency rules were cut. In addition, government performance was reviewed and actions were taken to reduce the size of the bureaucracy while improving the operational performance of government agencies. Through such actions, the initiative known as Reinventing Government realized savings of some USD 136 billion during the years from 1993 to 2000. But the benefits extended beyond walls of government, because these actions also liberated businesses to improve their performance and the performance of the economy more broadly.

The OECD’s Review of Regulatory Reform in the United States (1999) was positive in its assessment of this period, while noting areas for improvement with respect to social issues and bureaucratic functioning. As stated in the blurb for the report:

“The United States has been a world leader in regulatory reform for a quarter century. Contrary to popular belief, the United States is not less regulated than other countries, but differently regulated due to the pro-competition policy stance of federal regulatory regimes, and the openness and contestability of regulatory processes. Far-reaching economic deregulation combined with efforts to improve the quality of social regulation have supported the construction of one of the most innovative, flexible and open economies in the OECD, while maintaining health, safety and environmental standards at relatively high levels. However, significant regulatory problems still exist. Improving the performance and cost-effectiveness of expensive social regulations and government formalities is a key challenge for regulatory quality. In a word, the challenge of regulatory reform in the United States is not how much regulation, but how good.”

Regulation remains on the political agenda in the US. Some action is underway, led by the Executive Branch. In May of 2012, the White House announced a series of measures intended to “save nearly $6 billion in the next five years by eliminating outdated requirements and unjustified costs. To ensure that the federal government continues this important work, the President also signed a new Executive Order today, making it a continuing obligation of our government to scrutinize rules on the books to see if they really make sense.”

But, as the international indicators demonstrate, more needs to be done. Some aspects, such as reform of tax regulation, will require co-operation of the Legislative Branch, including a degree of bipartisanship and frank consultation with a broad range of stakeholders. And, this is not to say that regulatory reform is a silver bullet solution. Many aspects of competitiveness are beyond easy reach of regulation or deregulation (e.g., quality of education). In addition, mistakes can be made in deregulation (e.g., some of the blame for the US financial crisis in 2008 may be due to failures of deregulation or failures to properly implement regulations that were on the books). Nonetheless, regulatory reform remains an underexploited policy lever, one that should be pursued because it is clearly in the national interest.