Tag Archives: Social economy

Why Inequality Matters

By Thorvaldur Gylfason – Since the early 1970s, the share of national income paid to workers in advanced economies has fallen from 55 to 40 percent. A declining labor share goes along with increased inequality in the distribution of income and wealth as well as health. Medical researchers report that the wealthiest one percent of American men live 15 years longer than the poorest one percent and that the wealthiest one percent of American women can expect to live ten years longer than their poorer counterparts. The gap is widening.

Concerns about inequality have recently been thrust to the forefront of political discourse around the world. An important part of the explanation for the surprise victory of Donald Trump in the 2016 US presidential election is that he did well among those voters who felt they had been left behind with stagnant real wages for decades while CEO compensation rose from 20 times the typical worker’s compensation in 1965 to 270 in 2008.

What could workers do?

As film maker Michael Moore puts it, they could throw Molotov cocktails at the powers that be. Trump was their Molotov. Similarly, in the 2016 referendum in the UK, those who felt left behind tended to vote for Brexit. more>

Everyone wants to “teach a man to fish.” But skills training alone doesn’t help the world’s poor.

By Kelsey Piper – Skills training programs take a lot of forms, but there are generally two kinds: programs aimed at individuals, which try to teach them everything they’ll need to take higher-paying local jobs, and programs aimed at business owners and prospective business owners, which try to teach them skills to run a business more efficiently and expand their operations.

Their objectives are laudable, but there’s just one problem: They largely don’t work.

Participation rates in the programs aren’t very high. People who do participate often drop out, if the program lasts more than a few days, and unsurprisingly, it’s hard to teach important results in that time. For that matter, participants might be right to ignore the program or drop out, as research suggests that the programs don’t reliably increase income.

This isn’t to say every skills training program is ineffective. But even the programs that do show results often don’t stand up to cost-benefit analysis: The results they get are worse than if they just gave people the money that is spent on training them.

That said, recent research has found cost-effective results for programs that take a combined approach: training and mentoring, plus direct grants of assets. Those programs, more than just pure skill-training approaches, look to be worth further study and investment going forward. more>

How Capitalism Actually Generates More Inequality

By Geoffrey M. Hodgson – At least nominally, capitalism embodies and sustains an Enlightenment agenda of freedom and equality.

Typically there is freedom to trade and equality under the law, meaning that most adults – rich or poor – are formally subject to the same legal rules. But with its inequalities of power and wealth, capitalism nurtures economic inequality alongside equality under the law.

Today, in the USA, the richest 1 per cent own 34 per cent of the wealth and the richest 10 per cent own 74 per cent of the wealth. In the UK, the richest 1 per cent own 12 per cent of the wealth and the richest 10 per cent own 44 per cent of the wealth. In France the figures are 24 cent and 62 per cent respectively. The richest 1 percent own 35 percent of the wealth in Switzerland, 24 per cent in Sweden and 15 percent in Canada.

To what extent can inequalities of income or wealth be attributed to the fundamental institutions of capitalism, rather than a residual landed aristocracy, or other surviving elites from the pre-capitalist past? A familiar mantra is that markets are the source of inequality under capitalism. Can markets be blamed for inequality?

In real-world markets different sellers or buyers vary hugely in their capacities to influence prices and other outcomes. When a seller has sufficient salable assets to affect market prices, then strategic market behavior is possible to drive out competitors.

Would more competition, with greater numbers of market participants, fix this problem? If markets per se are to be blamed for inequality, then it has to be shown that competitive markets also have this outcome. more>

Updates from Chicago Booth

The secrets of shopping
By Amy Merrick – A woman suffering from a headache walks into a drugstore. She faces a shelf of remedies: mostly bottles of branded aspirin, such as Bayer. Next to those colorful, heavily advertised boxes are store-brand packages of generic aspirin. The woman puts the generic into her basket and goes home.

A quartet of researchers find that she’s not alone, as sophisticated shoppers—such as doctors or pharmacists, the people most likely to know whether the extra few dollars spent on a brand are worth it—opt to buy generic headache drugs more often.

In fact, a doctor or pharmacist is 18 percentage points more likely than the typical shopper to buy a private-label headache remedy. The magnitude of the difference surprised one of the researchers, Matthew Gentzkow, Richard O. Ryan Professor of Economics and Neubauer Family Faculty Fellow at Chicago Booth.

“The effects are really big across a lot of health-care categories,” Gentzkow says. The researchers estimate that if all US consumers were to start shopping like pharmacists, they could save a collective $410 million a year on headache remedies. more>

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Platform Work – Breaking Barriers Or Breaking Bad?

By Irene Mandl – In the abstract, platform work is the matching of supply and demand for paid work through an online platform. In practice, most people are likely to have encountered it through big online platforms such as Uber, Deliveroo or Amazon Mechanical Turk. This is a new form employment that began to emerge in Europe about a decade ago. And while it is still small in scale – estimates of the percentage of workers employed by platforms are in single digits – it is growing relentlessly.

New platforms are constantly starting up, changing their business models and sinking into obscurity. But some have gained a solid foothold and look likely to be around for some time to come.

Increasing numbers of workers are attracted to working this way – for some, out of necessity as they have no alternative employment opportunities; for others, it’s an easier way to get work than looking for a standard job. Some use it as a way to earn extra income on the side – perhaps to pay for a holiday or buy a new car. And some do it simply because they enjoy it – like the designers who use it to showcase their creativity online.

Many try it once and never do it again, others do it regularly but not intensively, and a small proportion of Europeans do platform work as their main income source.

It is growing thanks in part to the ever-expanding variety of tasks being mediated through platforms. At one end are the online micro-tasks – click-work – that do not require particular skills, such as tagging photos. At the other are larger projects commissioned from highly skilled professionals.

The tendency of platform work to encroach on existing areas of business has sparked debate in many EU member states and attracted media attention – the backlash of food-delivery riders against platforms like Deliveroo or Foodora or of traditional taxi companies against Uber have been widely reported.

Platform work does not fit into traditional economic and labour market structures, and is challenging the institutions and legislation built around them. Courts in various countries have been asked to decide whether or not this business model creates unfair competition for traditional operators and whether it circumvents labor law. more>

The Finnish Basic Income Experiment – Correcting The Narrative

By Jurgen De Wispelaere, Antti Halmetoja and Ville-Veikko Pulkka – The Finnish government’s refusal to extend or expand the experiment may not come as much of a surprise once the budgetary implications are taken into account but it nevertheless amounts to one more disappointment amongst those closely watching how the experiment is progressing. And disappointments have been plentiful with this project.

After a promising start, the first blow came when the Sipilä government ignored most of the suggestions and recommendations of the research consortium led by Kela (the Social Insurance Institution of Finland) and charged with preparing the experimental design — incidentally, appointed by the very same Juha Sipilä.

The design now being rolled out is much more limited than many had hoped for. Repeated requests for additional budget or postponing the starting date were ignored. Much-needed coordination between the different ministries involved was not forthcoming. The government also delayed appointing the team charged with evaluating the result until the experiment was well into its second year – with detrimental effects for any attempt to gain a more comprehensive insight into the experiment’s wellbeing effects. more>

Updates from Chicago Booth

No, America is not more divided than ever before
By Howard R. Gold – It may seem sometimes like the United States is coming apart. “While rural America watches Duck Dynasty and goes fishing and hunting, urban America watches Modern Family and does yoga in the park,” write Chicago Booth’s Marianne Bertrand and Emir Kamenica.

“The economically better-off travel the world and seek out ethnic restaurants in their neighborhoods, while the less well-off don’t own a passport and eat at McDonald’s.” Conservatives, they write, favor masculine names for boys while liberals prefer more-feminine names, and men play video games while women browse Pinterest.

These kinds of cultural splits can have economic, social, and political consequences in that they may ultimately reduce social cohesion within a country. But according to Bertrand and Kamenica, who measured cultural divisions over time, the cultural gap in the US is largely stable—not widening.

The data reveal that divisions definitely exist. Watching certain movies or television shows, reading certain magazines, or buying particular consumer products are predictable markers of traits such as how much money people make or how far they got in school. more>

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Is The Monetary System Facing The Risk Of Recession?

By Francesc Raventós – The International Monetary Fund, other economic institutions, politicians, experts, and a good number of indicators predict a new economic downturn. The causes will be diverse but the significant one is that debt worldwide has grown at an exaggerated rate.

According to the report of the International Finance Institute, IIF, global debt is $247-plus trillion, 318% of GDP.

In the 2000s or noughties an expansive fiscal and monetary policy with low interest rates generated significant public deficits, a strong increase in borrowing and created a stock market and real estate bubble that erupted in 2007, forcing central banks to push for a huge monetary expansion – Quantitative Easing – to get out of the crisis eventually.

With a lot of financial liquidity in the market at a cost close to zero, the economy has regained growth and, for now, inflation is under control. But the economic cycle cannot be considered closed until central banks’ debt and interest rates return to normal. Trust in the International Monetary System, and the main currencies remains, but if some day trust in one important currency is lost, the situation would be very delicate.

Now the economic recovery has been achieved, it is time to gradually restore debt and interest rates to reasonable levels (aka tapering). The US Federal Reserve (Fed) has already increased its interest rate and announced that it will continue to do so.

The consequences have been immediate, with the withdrawal of investments from emerging countries, such as Argentina, Brazil, South Africa, India or Turkey, to invest in American bonds. The European Central Bank (ECB) has also announced that by the end of 2018 it will stop buying debt and that interest rates will rise as the economy improves (but not before the summer of 2019).

What will be the consequences of tapering?

Will it destabilize the economy?

What are the risks of entering a new recession?

Will the current monetary system resist?

How will the governments that are highly indebted deal with recession? more>

How to Destroy Neoliberalism: Kill ‘Homo Economicus’

By Nick Hanauer – Mostly in life, we are judged purely for our actions and accomplishments. And I have been honored in that way before: as a successful capitalist and as a philanthropist and for my civic activism. But this award is more interesting and personally gratifying because in this case, why I do what I do is as important as what I do, and for this I am deeply appreciative.

To me, the great attraction of humanism is not that it holds us to a higher standard, but that it asks us to hold ourselves to a higher standard. It’s relatively easy to do the right thing because of a looming reward or punishment—even in an afterlife. It is much harder, and therefore more meaningful, to do the right thing simply because it is the right thing to do—particularly if doing the right thing appears to involve personal trade-offs in the here and now.

But more consequentially, the more I have come to understand market capitalism, both as a practitioner and as a student of economic theory, the more I have come to understand that this humanist ethos is a prerequisite for human prosperity itself. more>

Climatic changes and political shifts

By Laurenţiu Rebega – The elections in Bavaria were just the latest episode in a series that began with the Brexit referendum and continued with the elections in France, Italy, Austria, the Netherlands, Sweden, and so on. A series will not end any time soon.

It is not difficult to notice that the traditional center parties from all over the place – affiliated, at the European level, to the EPP or PES- registered significant backslides. At the same time, the so-called “extremists” or “populists” registered top scores that allowed them, in some cases, to adhere to power.

I believe the European electoral experiences in the last period can be analyzed from four points of view. One: Transforming politics in governance. For some decades now, not years, the functions of power shifted away from the political options, which involves making decisions according to a humanist vision, towards increasingly technical management options.

This means that the citizens’ wishes or opinions are second to mathematical arguments (in economy, transportation, communications and even human resources management). The philosophical consequence that few people have the courage to say out loud, is that a better world for all can be built on mathematical models in which the political factor is nothing but the root cause for perturbations, mistakes, and corruption. At the level in discussion, this phenomenon is reflected in the decrease of people’s interest in politics as a fundamental discipline of society. more>