Tag Archives: Government

The rule of law is under duress everywhere

By Ted Piccone – Anyone paying attention to major events of the day in the United States and around the world would know that the basic social fabric is fraying from a toxic mix of ills — inequality, dislocation, polarization, environmental distress, scarce resources, and more. Signs abound that after decades of uneven but steady human progress, we are digging a deeper and muddier hole for ourselves. The principal reason for this pessimism is not the material facts of decline — we have lived through worse times before — but the crumbling consensus around how to overcome such crises. The outbreak of the COVID-19 pandemic is fast becoming the latest stress test for whether the social contract can hold.

The roadmap for climbing out of the trough should begin with the understanding that the rule of law is the sine qua non of more successful societies. Societies with strong rule of law have built-in mechanisms for mediating conflicts through open and inclusive debate, in which all voices are treated equally, and outcomes are perceived as fair and reasonable.

Unfortunately, as documented by the latest findings of the World Justice Project’s Rule of Law Index, the rule of law is declining around the world for the third year in a row. The trends are widespread and persistent: The majority of countries that declined in the 2020 rule of law scores also deteriorated in the previous year, and weaker or stagnating performance occurred in the majority of countries in every region and across every income group.

Of particular concern is that countries experienced the biggest declines over the past year in the areas of fundamental rights (54 countries declined, 29 improved), constraints on government powers (52 declined, 28 improved), and absence of corruption (51 declined, 26 improved). These three factors of the World Justice Project (WJP) Index saw the worst performance globally over a five-year time period as well.

In short, the key rule of law elements that undergird accountable governance, and relatedly, citizens’ trust in their leaders, are in retreat, in both established democracies like the United States, and in entrenched autocracies, from Russia to China to Venezuela. In this context, the rise of populist anger and social protests should come as little surprise. more>

Updates from Chicago Booth

Many retailers are making a basic mispricing mistake
By Robin I. Mordfin – Retailers have long set prices ending in 99 cents, knowing that buyers view $4.99, for example, as significantly less expensive than $5. But many companies underestimate consumers’ left-digit bias and should be using these prices more than they do now, according to research by Chicago Booth’s Avner Strulov-Shlain.

Strulov-Shlain analyzed price data from 1,710 popular products in 248 stores of a single US retailer, as well as data on 12 products carried by more than 60 chains and in 11,000 of their stores. He finds that one-quarter to one-third of all prices ended in 99 cents.

But companies tend to miscalculate how customers react to a one-cent price change, Strulov-Shlain asserts. Buyers treat a price increase from $4.99 to $5 as if it were a 15–25 cent increase, while companies behave as if customers respond as though it were a 1.5–3 cent increase.

To learn how much companies should charge, Strulov-Shlain built a model that combines previously established left-digit bias models with a profit-maximizing formula that takes left-digit bias into account. Using the model and retailers’ pricing data, he estimates what price sensitivity and left-digit bias the companies had in mind when setting prices. Many items would have been better priced with a 99-cent ending, because demand dropped when the dollar digit changed, he finds. That was also the case at higher costs, where selling more units for the lower 99-cent price was more profitable than selling fewer units at a higher price. more>

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Updates from McKinsey

A government blueprint to adapt the ecosystem to the future of work
Digital and artificial intelligence technologies will likely have a substantial economic and social impact. Governments can act now to create shared prosperity and better lives for all citizens.
By Marco Dondi, Solveigh Hieronimus, Julia Klier, Peter Puskas, Dirk Schmautzer, and Jörg Schubert – In the coming years, automation will have a substantial economic and social impact on countries around the world—and governments will by no means be passive observers. This report seeks to provide government leaders and policy makers with the foundation to harness the potential of automation while mitigating its adverse effects.

Automation has the potential to alter nearly every facet of work and daily life. Indeed, automation, digital, and artificial intelligence (AI) technologies are already essential to our professional and civic lives. The McKinsey Global Institute identified the adoption of digital technologies as the biggest factor in future economic growth : it will likely account for about 60 percent of potential productivity growth by 2030. AI alone is expected to yield an additional 1.2 percent in productivity growth per year from 2017 to 2030.

Promoting the adoption of automation is critical because many countries will need to more than double their productivity growth to simply sustain historic economic growth rates. In this context, the productivity boost from automation is necessary to avoid the negative consequences of stagnating economies, such as lower income growth, increasing inequality, and difficulty for corporations and households to repay loans.

While automation has the potential to boost economic growth, it poses some key challenges to the nature of work. The public senses this shift. In a recent survey of 100,000 citizens in 29 countries, we found that job security was the number-one economic priority for the future. Our analysis has identified three challenges associated with automation.

Shifting skill requirements. The path toward sustained prosperity requires a growing number of talented individuals to enable a broad adoption of digital and AI technologies as well as a broad-based workforce capable of operating in a more automated and digital environment. Without addressing this skill demand, technology adoption could slow, and people with obsolete skills could exit the labor force.

The adoption of digital and AI technologies will also require most workers to upskill or reskill. Up to 14 percent of people globally may need to change occupations by 2030, a figure that could climb to more than 30 percent in more advanced economies with a faster pace of automation. However, reskilling is hard to do well at scale, and efforts to date have produced mixed outcomes. more>

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Low unemployment isn’t worth much if the jobs barely pay

By Martha Ross and Nicole Bateman – Each month, the Bureau of Labor Statistics releases its Employment Situation report (better known as the “jobs report”) to outline latest state of the nation’s economy. And with it, of late, have been plenty of positive headlines—with unemployment hovering around 3.5%, a decade of job growth, and recent upticks in wages, the report’s numbers have mostly been good news.

But those numbers don’t tell the whole story. Are these jobs any good? How much do they pay? Do workers make enough to live on?

Here, the story is less rosy.

In a recent analysis, we found that 53 million workers ages 18 to 64—or 44% of all workers—earn barely enough to live on. Their median earnings are $10.22 per hour, and about $18,000 per year. These low-wage workers are concentrated in a relatively small number of occupations, including retail sales, cooks, food and beverage servers, janitors and housekeepers, personal care and service workers (such as child care workers and patient care assistants), and various administrative positions. more>

The Battle for India’s Founding Ideals

By Madhav Khosla – These events come after much of India has been engulfed in protests over a new citizenship law that treats Muslims differently to those from other religions. These protests, which have seen tens of thousands march across the nation, began in universities. The government’s reaction was swift and brutal. It encompassed both prohibitory measures, such as Internet shutdowns and the prevention of public assembly, as well as reactive measures, which included detention and violence. In Uttar Pradesh, a state which is home to more Indians than any other, the tales of police brutality would send a shiver down any spine.

Sunday’s attack underscores two crucial changes taking place in the world’s largest democracy. The first is to the country’s formal legal architecture. India’s founders, as I have suggested in a new book, India’s Founding Moment, imagined citizenship to be unmediated by community affiliation. For them, to belong to the modern world was to belong to representative framework where each person was treated on free and equal terms.

Measures like the new citizenship law challenge and undermine this founding vision. The law enables “any person belonging to Hindu, Sikh, Buddhist, Jain, Parsi or Christian community from Afghanistan, Bangladesh or Pakistan” to become an Indian citizen, thereby explicitly excluding Muslims.

India’s Constitution guarantees the right to equal treatment. This right applies to all persons and not only to citizens. To pass muster, a law has to make an intelligible distinction between those that it includes and those that it excludes. Moreover, this distinction has to bear a rational connection to the law’s objective.

In this case, the stated objective is addressing the religious persecution of the enumerated classes. But the law does not capture this objective as it is both over- and under-inclusive. It does not provide protection to groups such as the Ahmadiyya Muslims from Pakistan and it assumes that all those who enter India from the specified classes are persecuted. This presumption is revealed by the fact that the law has no provisions relating to religious persecution at all, thus eliminating any link between the distinctions drawn and the declared aim.

As India is thrown deeper and deeper into a cycle of extra-constitutional violence, we should fear that the state and citizens will struggle to manage the situation. In such scenarios, the disorder and horror often follows a logic of its own.

If India continues to unravel in this fashion, there will be unspeakable acts on either side, untold truths that are hidden in every quarter. Even the most terrifying moves will be justified, even the clearest forms of evidence will be challenged.

In a world where public institutions and social harmony have given way, we will live under a state that claims monopoly over the exercise of force but no longer quite enjoys it. The state will deploy and exploit its power in every possible way, but, as in the case of colonial rule, the idea of legitimate authority will cease to have meaning. more>

Capitalism’s Case for Abolishing Billionaires

Adam Smith wanted to keep the power of the rich in check.
By Linsey McGoey – Adam Smith is remembered as the patron saint of unregulated commerce, as the world’s greatest prophet of profit. His idea of the “invisible hand” has been used by countless economists and politicians to argue that capitalism works, despite its excesses and inequalities.

But this fairytale version is wrong. The actual Smith wrote of his dream for a more equal society, and condemned the rich for serving their own narrow interests at the expense of the wider public.

“The establishment of perfect justice, of perfect liberty, and of perfect equality,” he writes in Wealth of Nations, “is the very simple secret which most effectively secures the highest degree of prosperity to all the three classes.”

Today Smith’s call for “perfect equality” is either ignored or deliberately misrepresented.

But with 1% of the world’s population now owning half its wealth, that belief is being forcefully called into question. There are growing calls to abolish billionaires and their privileges, including preferential tax treatment, handouts to corporations, and grossly inflated executive salaries that are often subsidized by taxpayers.

Smith was scathingly critical of the wealthy’s disproportionate power over government policymaking. He complained about the tendency of the rich to shirk tax obligations, unfairly passing tax burdens on to poor workers. He heaped scorn on government bailouts of the East India Company. He thought dirty money in politics was akin to bribery, and that it undermined the duty to govern impartiality. He wasn’t alone.

The reality is that the historical case for abolishing billionaire privileges has a long heritage, stretching to enlightenment thinkers and the revolutionaries they inspired, including countless enslaved and working-class people in forgotten graves. more>

Why Corporations Can No Longer Avoid Politics

By Alana Semuels – For decades, most companies went to great lengths to avoid opining on social issues. No longer.

What’s changed? Frustrated with political gridlock, consumers have turned to business for leadership. “I think business has to pick up the mantle when governments fail you,” Patagonia CEO Rose Marcario told TIME earlier this year. Young consumers are also more likely to patronize brands whose business models claim to include social change.

Nine in 10 members of Generation Z, who account for as much as $150 billion in spending power globally, believe that companies have a responsibility to social and environmental issues, according to McKinsey. In an age when companies have detailed information on customers’ ages, incomes and political persuasions, they’re calculating that these socially aware consumers are more lucrative than those who might be put off by social-justice campaigns.

“In a politically polarized world that is saturated in social media, you’re not going to escape politics,” says Jerry Davis, a professor of management and sociology at the University of Michigan. “This is a sea change–in the past, companies kept their heads down and did their best to never be seen.” more>

Preventing digital feudalism

By Mariana Mazzucato – The use and abuse of data by Facebook and other tech companies are finally garnering the official attention they deserve. With personal data becoming the world’s most valuable commodity, will users be the platform economy’s masters or its slaves?

Prospects for democratizing the platform economy remain dim.

Algorithms are developing in ways that allow companies to profit from our past, present, and future behavior – or what Shoshana Zuboff of Harvard Business School describes as our “behavioral surplus.” In many cases, digital platforms already know our preferences better than we do, and can nudge us to behave in ways that produce still more value. Do we really want to live in a society where our innermost desires and manifestations of personal agency are up for sale?

Capitalism has always excelled at creating new desires and cravings. But with big data and algorithms, tech companies have both accelerated and inverted this process. Rather than just creating new goods and services in anticipation of what people might want, they already know what we will want, and are selling our future selves. Worse, the algorithmic processes being used often perpetuate gender and racial biases, and can be manipulated for profit or political gain. While we all benefit immensely from digital services such as Google search, we didn’t sign up to have our behavior cataloged, shaped, and sold.

To change this will require focusing directly on the prevailing business model, and specifically on the source of economic rents. Just as landowners in the seventeenth century extracted rents from land-price inflation, and just as robber barons profited from the scarcity of oil, today’s platform firms are extracting value through the monopolization of search and e-commerce services. more>

Too Much Democracy Is Bad for Democracy

The major American parties have ceded unprecedented power to primary voters. It’s a radical experiment—and it’s failing.
By Jonathan Rauch and Ray La Raja – Americans who tuned in to the first Democratic presidential debates this summer beheld a spectacle that would have struck earlier generations as ludicrous. A self-help guru and a tech executive, both of them unqualified and implausible as national candidates, shared the platform with governors, senators, and a former vice president. Excluded from the proceedings, meanwhile, were the popular Democratic governor of a reliably Republican state and a congressman who is also a decorated former marine.

If the range of participants seemed odd, it was because the party had decided to let small donors and opinion polls determine who deserved the precious national exposure of the debate stage. Those were peculiar metrics by which to make such an important decision, especially given recent history.

Had the Democrats seen something they liked in the 2016 Republican primary? The GOP’s nominating process was a 17-candidate circus in which the party stood by helplessly as it was hijacked by an unstable reality-TV star who was not, by any meaningful standard, a Republican.

Americans rarely pause to consider just how bizarre the presidential nominating process has become. No other major democracy routinely uses primaries to choose its political candidates, nor did the Founders of this country intend for primaries to play a role in the republican system they devised.

Abraham Lincoln did not win his party’s nomination because he ran a good ground game in New Hampshire; rather, Republican elders saw in him a candidate who could unite rival factions within the party and defeat the Democratic nominee in the general election.

Today’s system amounts to a radical experiment in direct democracy, one without precedent even in America’s own political history.

The two major parties made primaries decisive as recently as the early 1970s. Until then, primaries had been more like political beauty contests, which the parties’ grandees could choose to ignore. But after Hubert Humphrey became the Democrats’ 1968 nominee without entering a single primary, outrage in the ranks led the party to put primary voters in charge. Republicans soon followed suit. more>

Ending short-termism by keeping score

By Klaus Schwab – As finance ministers gather in Washington, DC, for the World Bank and International Monetary Fund’s annual meetings, they will face no shortage of urgent matters to discuss. Fears of a global recession, the US-China trade war, the fallout of the Brexit talks, and a dangerous debt overhang make this the most stressful economic juncture in a decade. These issues must be discussed, and we should all hope that they can be resolved with minimal damage.

All of this assumes an end to the economic short-termism that underpins policymaking today. For that, we should develop scorecards to track our performance on these long-term priorities. To that end, I have three suggestions.

First, we need to rethink GDP as our “key performance indicator” in economic policymaking.

Second, we should embrace independent tracking tools for assessing progress under the Paris agreement and the SDGs (United Nations Sustainable Development Goals).

Third, we must implement “stakeholder capitalism” by introducing an environmental, social, and governance (ESG) scorecard for businesses.

On the first point, we desperately need to change our overall economic frame of reference. For 75 years, the world marched to the beat of the drum called “Gross Domestic Product.” Now, we need a new instrument. GDP gained traction when economies were primarily seen as vehicles for mobilizing wartime production. Yet today’s economies are expected to serve an entirely different purpose: maximizing wellbeing and sustainability.

It is time to consider a new approach. A group of economists from the private sector, academia, and international institutions, including Diane Coyle and Mariana Mazzucato, has already been working on alternate measures and ways to correct for the failings of GDP.

Their Wealth Project, which evolved from efforts initiated by the World Bank, has offered a number of proposals for how we can move forward. more>