Antifragility and covid-19

Five years ago, I wrote about Nassim Taleb’s book, Antifragility.  The book built on the ideas developed in Fooled by Randomness and Black Swan.  On 26 January 2020, before its outbreak in the West, he wrote a prescient warning about covid-19.

Taleb writes about probability and how humans fail to correctly estimate probabilities, especially the very low probabilities at the tails of non-linear distributions (“fat tails”).  People wrongly tend to extrapolate from a normal situation.  Taleb coined the terms “black swans” (highly rare and unforeseeable events) and “white swans” (highly rare but foreseeable events) to describe such low-probable but highly consequential events.

Landscapes are mostly the result of extreme events in the past (volcano eruptions, tsunamis, ice ages…), much more than the daily grind of erosion and sedimentation.  Similarly, black and white swan events have an outsized influence on our politics, economies and societies.

The concept of antifragility is related to resilience and robustness, but the difference is that antifragile systems become stronger under pressure, like bones or muscles become stronger when they are tested.

The shock of the pandemic has exposed the increased fragility of the western world: tightly integrated global networks and supply chains and a reliance on China for key resources such as pharmaceutical ingredients.  This means that risks such as pathogens, computer viruses, cyber attacks or reckless budgetary management by companies and central banks are likely to cause global rather than local shocks.

Africa’s relative exclusion from global supply networks has so far spared it from the worst effects on the pandemic.

Taleb advocates for more antifragility in the system. “That’s why nature gave us two kidneys.”  Antifragile systems are characterised by optionality, redundancy and variability.  They contain the institutional equivalent of “circuit breakers, fail-safe protocols, and backup systems.

Some elements of such antifragile systems are:

  • distribution of power among smaller, more local, experimental, and self-sufficient entities
  • no monopolies or centralized bureaucracies (against increasing trends towards winner-takes-all markets and data centralisation)
  • public but decentralized health insurance, (universal) basic income or temporary unemployment benefits (bailing out individuals, not companies).
  • “just in case” instead of “just in time” organizational models
  • more cash reserves and less debt (for companies, households and governments)
  • having a safety net of loyal, well-trained and adaptable full-time employees (rather than relying on free-lancers, consultants and gig workers)

Antifragile systems are not necessarily big government systems. People and governments tend to over-intervene on small things and under-intervene for large things.  Governments should plan and provide buffers for extremesThis is especially true in areas with high uncertainty like climate change.  Not the median value of expected temperature rise is so much important, rather than the ‘fat tail’ of improbable but potentially devastating temperature rises.

A way to make systems more antifragile is to make sure that those responsible have skin in the game:

“In the Hammurabi Code, if a house falls in and kills you, the architect is put to death”.  Correspondingly, any company or bank that gets a bailout should expect its executives to be fired, and its shareholders diluted. “If the state helps you, then taxpayers own you.”

For companies, skin in the game means letting the process of creative disruption play out.  If airlines used their cashflow in the good times to buy back shares instead of building reserves, why should they be bailed out?  Governments could be made more responsible by linking salaries and incentives of politicians to debt levels, economic growth, poverty levels and well-being of the population.

Will covid-19 have a permanent impact and lead to more antifragile systems?

Memories are short.  Additional expenses in hospital beds and strategic stocks of materials become harder to justify as memories fade. There will heightened attention for pandemic risks for some time now.  But what about other systemic risks?  The systemic risk of inflation and a corporate and government debt crisis is not high on the agenda now.  Gone are calls for increased expenses in cybersecurity or counterterrorism. Attention for climate change mitigation has waned.

There is an increased focus on making supply chains more resilient, but this trend started before covid-19.  This includes shortening them, reducing reliance on a few suppliers and increase investments in robotics.  The nature of work is changing with more decentralization and distance work, but with a higher reliance on the internet.  The covid-19 pandemic risks increasing the power of global corporations due to their better ability to raise free cash and lobbying powers.

What about education?  Covid-19 has arguably spurred more innovation and investment in online learning than in the last 5 years.  But will it last and will it make education systems more antifragile?

A basic problem in the organisation of education is low productivity increases compared to other sectors, a phenomenon referred to as Baumol’s Disease.  A lack of relative productivity growth explains why salaries for educators struggle to keep up with those of other sectors and why pedagogical innovations such as differentiation, project-based learning and personalized learning struggle to find inroads.

The only plausible way to increase productivity in education is by online learning.  By digitizing parts of the education process (explaining theory, showing examples, elaborating on topics, evaluation), time is freed for educators to focus on social support, individual learning support and supporting group activities. Making educators responsible for larger groups of learners allows for increasing their salaries.

Will covid-19 have a lasting influence on education?  Many schools and teachers have experimented and developed skills with online learning. Many may continue developing instructional movies and online Q&A sessions.  However, a real education reform would include moving away from year grades and fixed classes and a specialisation in teacher roles .  Schools have a lot of autonomy in Flanders to experiment with online learning and the organisation of education. If covid-19 can result in lasting innovations in the organisation of education in our schools, it will have had a positive impact after all.

 

 

The rise of Homo deus and the impact on education

Homo Deus: A Brief History of Tomorrow by Yuval Noah Harari, a Professor of History at Hebrew University, Jerusalem, is a thought-provoking book that builds on his previous book, Sapiens.  In Sapiens, Harari described how humans have been successful through our ability to cooperate in large groups, helped by fictional stories like religions and ideologies.  As a result, the challenges of famine, plague and war have largely been reigned in.  In 2020, more people will die from obesity than from covid-19. For most people, McDonald’s and Coca Cola pose a large greater threat to their health than any virus.

Artificial intelligence, made possible through breakthroughs in biology and information technology, is turning our focus to the challenges of achieving bliss, immortality and divinity.  The title Homo deus refers to humankind taking up the powers to create humans and animals according to our wishes, traditionally the preserve of gods.

This has profound implications on our lives. Our humanistic world view changes to an algorithmic world view.  Humanism says that human feelings and our free will are the highest authority in the world. However, stories about free will are likely to be increasingly challenged, because human feelings are just biochemical algorithms shaped by millions of years of evolution.  As we gain more understanding of these algorithms, we will understand people much better than we can understand ourselves.

This integration of computer science and life sciences lead to the uncoupling of intelligence and consciousness. They are coupled in humans, but as we develop artificial cognitive and emotional intelligence, the two will be increasingly separated. We are not going to build machines any time soon that have feelings like us: that’s consciousness.  But we have already built biochemical sensors, machines and data-processing networks that can record our feelings better than we know them ourselves: that’s emotional intelligence.

Humans can’t handle these massive amounts of data generated by biochemical sensors.   So gradually, more and more decisions and responsibilities will be transferred to machines.

Harari calls this trust in the power of data and algorithms dataism (after theism and humanism). Its followers put their faith in information as the highest source of value. As is often the case, medicine is a frontrunner.  Progress in genetics and biotech will make that decisions about our health will be increasingly be made by algorithms.  An early example is the decision by Angelina Jolie to undergo a double mastectomy.

However, we are likely to see a similar shift in authority in other fields. For example, in online learning, data are collected on how long each learner spends on each page, which exercises are done successfully, and which cause problems.  Through learning analytics, we can assess very accurately which students are at risk of dropping out and offer them additional support.  In the next step, which is already possible, online learning will be connected with students’ senses so instructional designers can see where students are really interested and where their attention slips.  In the near future, their learning will be connected to internal sensors, measuring blood pressure, eye movements, heart rate etc.  As a result, a learning provider will be able to see exactly where a student got excited, angry, bored etc.  At the end of a course, the course provider will know the student much better than the student knows him/herself.  Companies will be able to measure the emotional impact of everything you read or watch.  They will know exactly who you are and how to press your emotional buttons.  For now, a teacher or professor still makes the decision to pass or fail the student, but how long still?  If algorithms can get a much better insight in what a student has done and learned, why would you still need a teacher?  Authority in education will shift from individual humans to networked algorithms.

However, access to this is bound to be unequal.  There will be a small super elite with access to the master algorithms and the corporate profits.  The rest of humanity will simply be tools in their vast schemes. The result of this might be that, in the 21st century, most men and women will lose their economic value. Many may find themselves in a new class of useless people. We will need less and less need for people to work in the fields, work in factories and offices or fight in wars.  People will struggle to find purpose in life, as work, parenting and entertainment are regulated by AI.  Will people be happy and how will they find purpose in life?  Might drugs, entertainment and computer games be used to keep people in an eternal bliss?  Chris Andrade’s Dignity offers a glimpse into what it means for communities to lose their sense of purpose, that was traditionally been provided by work, church and family.  This rising socio-economic inequality will gradually translate into biological inequality, as this class of super rich people will have the means to upgrade themselves via genetic engineering and biological implants. This evolution risks making inequality within and between societies permanent, as the traditional ways of bridging the gap (cheap labour, education) risk becoming less relevant.

Does it necessarily follow that AI will take over?  Can we stop this evolution?

Healing and safety are the initial justification for every upgrade.  You can’t be against being healthy or being safe, if not for you, for your loved ones.

Find some professors experimenting in genetic engineering or brain–computer interfaces and ask them why they are engaged in such research. Likely they would reply that they are doing it to cure disease. ‘With the help of genetic engineering,’ they would explain, ‘we could defeat cancer. And if we could connect brains and computers directly, we could cure schizophrenia.’ Maybe, but it will surely not end there.

Secondly, in the days of European imperialism, conquistadors and merchants bought entire islands and countries in exchange for some coloured beads. As observers of the tech industry like Jaron Lanier have been pointing out for many years, in the twenty-first century our personal data is probably the most valuable resource most humans have to offer, and we are giving it to the tech giants in exchange for email services and funny cat videos. Most people have no clue of the value of their data and sleepwalk into the era of dataism.

Thirdly, most important evolutions in our society are not the result of elections.  Nobody voted about the structure of the internet. Similarly, decisions about AI are made by a small group of people.  Technology is not deterministic.  Technological inventions can be used to make a democratic, communist or fascist system, but they are unlikely to be stopped.

What are some of the implications of Homo deus for our education systems?

  1. Inequality is likely to rise. Education for all is a critical counterweight to develop a well-informed and critical mass of citizens that can make sense of the evolutions in our society.
  2. The merger of ICT and biology. STEM subjects will rise in importance. Scientific literacy and basic programming skills are absolutely crucial to understand our society and stay relevant.
  3. The pace of change is accelerating. People need to be trained and re-trained regularly and will need to be able to cope with the uncertainty and have the mental flexibility to re-design themselves.
  4. Many jobs will disappear and might be replaced by new jobs. We mustn’t be complacent and assume that, because previous revolutions did not lead to massive job losses, that it will the same now. Education systems should regularly analyze how our society is evolving and be much bolder in designing curricula.
  5. The separation between a school and work life is blurring. It becomes increasingly ridiculous to separate people’s lives into a school life and a work life. It makes much more sense to have brief periods of intensive learning, followed by internships and jobs, followed by sabbaticals and new periods of learning.

The Road to Unfreedom

The Road to Unfreedom, written by Timothy Snyder, a professor at Yale University in the United States,  is a persuasive, revealing but disturbing book that links the present political problems in Europe, Russia and the United States.

The central idea in the book is two ways of living in time, two ways of translating facts into stories.  Both notions are false and lead us towards authoritarianism, hence the title “road to unfreedom”.  The two stories are the Politics of Inevitability and the Politics of Eternity.

In the politics of inevitability, there is one fixed future without alternatives in which life will be better for everyone.  It is the “end of history” discourse.  History is moving towards a clear end. The problem is that it blinds societies for the inevitable unattractive alternatives.  For example, if you believe that the internet only brings enlightenment, you don’t see the negative influence the internet has on democracy and inequality.

In the American capitalist version of this story, nature brought the market, which brought democracy, which brought happiness. In the European version, history brought the nation, which learned from war that peace was good, and hence chose integration and prosperity.  Before the collapse of the Soviet Union in 1991, communism had its own politics of inevitability: nature permits technology; technology brings social change; social change causes revolution; revolution enacts utopia.

Accepting that the future is fixed is to deny individual responsibility for making change.  The main problem of the politics of inevitability is that it opens the door to something worse. Financial or economic shocks may shift countries from a politics of inevitability to a politics of eternity.

In the politics of eternity, there is no future, only a nostalgic loop back to a glorious past.  Time is not a line but a circle.

The natural successor of the veil of inevitability is the shroud of eternity, but there are alternatives that must be found before the shroud drops. If we accept eternity, we sacrifice individuality, and will no longer see possibility.

Russia has reached the stage of eternity first.  It went through the politics of inevitability during the 1990s to reach the politics of eternity with the rise to power of Vladimir Putin.  Hydrocarbons, oligarchy and a lack of succession mechanisms drove this fast evolution towards eternity.

Europe and the USA are in a politics of inevitability and risk moving to a politics of eternity. Russia actively intervenes in European and American politics to realize this move to eternity, but there are also internal factors both within Europe and the United States: inequality, mythical representations of the past, oligarchy, a reliance on hydrocarbons and the demise of an independent and critical press, the weakening of institutions and the disregard for facts and experts.

The West is vulnerable as it believes in the notion of a glorious nation state past, whereas, in fact, European countries moved to European integration after their empires collapsed.

The politics of eternity is attractive for despots as it offers a solution to the challenges of succession and the inequality of wealth.  In a politics of eternity, elections are just a ritual and the leader comes from outside the system.  By removing the succession question, the immediate future is taken away and replaced by an endless loop of outside leaders.  Secondly, each person has its fixed place within the society, like cells in a body.  Therefore, there is no space for personal advancement which is convenient for the extreme rich, in Russia or other regions with high inequality.

Rather than discuss reforms, eternity politicians designate external threats. Rather than presenting a future with possibilities and hopes, they offer an eternal present with defined enemies and artificial crises. For this to work, citizens have to meet eternity politicians halfway. Demoralized by their inability to change their life, they must accept that the meaning of politics lies not in institutional reform but in daily emotion. They must stop thinking about a better and prefer the constant invocation of a proud past.

In the politics of eternity, facts don’t matter.  Everything is a lie and in such a world, your lies are as much worth as someone else’s lies.  To end factuality is to begin eternity. If citizens doubt everything, they cannot see alternative models beyond the country’s borders, cannot have sensible discussions about reform, and cannot trust one another enough to organize political change.  Putin’s direct assault on factuality is called implausible deniability. By denying things that are obviously true, he moves the focus from reporting the facts to a reality show about the men in power. Russian media create a climate in which news is entertainment.

The politics of eternity requires and produces problems that are insoluble because they are fictional. For Russia in 2012, the fictional problem became the designs of the European Union and the United States to destroy Russia.  It was best not to speak of actual threats, since discussing actual enemies would reveal actual weaknesses.  Russia’s real geopolitical problem was China. The West was chosen as an enemy precisely because it represented no threat to Russia.

The EU was presented as an existential threat to Russia, because it enforced law and generated prosperity. Russia has been trying to define success in this war not in terms of prosperity and freedom but in terms of sexuality and culture, and that the European Union (and the United States) be defined as threats not because of anything they did but because of the values they supposedly represent.

The essence of Russia’s foreign policy is a strategic relativism: Russia cannot become stronger, so it must make others weaker.  Russia sees international politics as a negative-sum game, where a skillful player can win by losing less than everyone else. The simplest way to make others weaker is to make them more like Russia.

In 2013, Russia began to influence its European neighbors into abandoning their own institutions and histories. It did so by supporting the extreme Right within EU member states.  It stimulates a discourse that harks back to a glorious, but fictional past of a wise and prosperous nation state. They do this through cyberwarfare, supporting extremist organizations and foreign policy.

Useful idiots like Farage and Le Pen propose a return to a nonexistent past, when Europeans lived in nation-states without immigrants. They are eternity politicians. Both Great Britain and France had been maritime empires that, as their colonies won independence, joined a European integration project. The European Union was a necessity for crumbling empires that lost colonial wars. Because they had no modern history as nation-states, an exit from the European Union would be a step into the unknown rather than the homecoming promised by nationalism.

Cyberwarfare is the preferred instrument, using cyber-attacks and controlling the online conversation by armies of bots.  The same bots were used in Ukraine, Brexit, US elections and various European elections. Twitter accounts that posted on Brexit were linked to Russia’s Internet Research Agency—later, every single one of them would also post on behalf of Donald Trump’s presidential campaign.  About a third of the discussion of Brexit on Twitter was generated by bots—and more than 90% of the bots tweeting political material were not located in the United Kingdom.

Russia bombed Syria to generate refugees, then encouraged Europeans to panic in order to weaken the German government and help the AfD.  Russia supplied not just the refugees themselves, but also the image of them as terrorists and rapists.  Russian-backed social media in Germany the Alternatif fur Deutschland (AfD) as the savior of Germany.

The American politics of inevitability gave way to a politics of eternity with the election of Trump. As in Europe, there are the vulnerabilities of the United States created by a politics of inevitability that are exploited by an aggressive Russian foreign policy.

It was in the places where the American dream had died that Trump’s politics of eternity worked.  Also, after the financial crisis of 2008, the American local press collapsed, leaving Americans to the internet for their information.  Few anticipated that the internet would be used against them.

Trump is a perfect politician of eternity. He called for a return to the past, to a time when America was great.   He creates a fantasy of the innocent us and the guilty then with the fictional idea of the wall.  The fictional creation “Donald Trump, successful businessman” fills the public space with untruth.  He never apologizes for lies, since doing so would be to recognize that such a thing as truth exists.  His claims to be the eternal victim are characteristics of a politics of eternity.

Russia’s intervention in the 2016 U.S. election was not just an attempt to get a certain person elected. It was also the application of pressure to the democratic structure by making the system slightly less representative, tilting the system towards authoritarianism. The victory of a Russian-backed candidate could be less important, in the long run, than the erosion of democracy.

Is there a way off the road to unfreedom?  There is, but Snyder is pessimistic.  The conclusion of this tale lies in the acknowledgment that Putin’s strategy has been very successful in shaking our faith in the sanctity of fact and expert knowledge.  The way to leave the road to unfreedom is through a politics of responsibility:

If we see history as it is, we see our places in it, what we might change, and how we might do better. We halt our thoughtless journey from inevitability to eternity and exit the road to unfreedom. We begin a politics of responsibility.

What does it mean to be responsible?

The politics of inevitability takes responsibility for the future away. Responsibility means discussing political choices and possible futures, realizing that our individual choices matter. It means accepting that people have ideas that don’t fit our preconceptions and looking for compromise. It means realizing how important conventions and mutual respect are as a way of maintaining order and civility — and how easily and carelessly they can be smashed.

We must keep digging for the facts and exposing falsehoods.  We should mistrust one-sided accounts of the past or the present.

Learn history: not in order to predict the future, but to free yourself of the past and imagine alternative destinies.  Yuval Noah Harari, Homo deus

A politics of responsibility would have to be about the future, not about a non-existing past. It should be about an active production of facts, investigative journalism and promoting quality local media.  It is also about investing in high quality education and renewable energy and cherishing the institutions that make it possible for individuals to act responsibly.

Although the book is mainly about Russia, Europe and the United States, the ideas of the book are relevant for developing countries as well. Snyder also highlights the importance of a quality public education system to develop critical citizens.

The Geography of Thought

nisbett_coverThe Geography of Thought from Richard Nisbett shows that East Asia and the West have had different systems of thought, including perception, assumptions about the nature of the world, and thinking processes, for thousands of years. Ancient Greek philosophers were “analytic” — objects and people are separated from their environment, categorized, and reasoned about using logical rules. Psychological experiments show the same is true of ordinary Westerners today. Ancient Chinese philosophers and ordinary East Asians today share a “holistic” orientation — perceiving and thinking about objects in relation to their environments and reasoning dialectically (focusing on contradictions, change and relationships), trying to find the Middle Way between opposing propositions. Differences in thought stem from differences in social practices, with the West being individualistic and the East collectivist.

There are strong social-psychological differences between East Asians as a group and people of European culture as a group. East Asians live in an interdependent world in which the self is part of a larger whole. Westerners live in a world in which the self is a unitary free agent. Easterners value success and achievement mostly because they reflect well on the groups they belong to, whereas Westerners value these things because they are badges of personal merit. Easterners value fitting in and engage in self-criticism to make sure they do so. Westerners value individuality and strive to make themselves look good. Easterners are more sensitive to the feelings of others and aim for interpersonal harmony. Westerners are more concerned with knowing themselves and are prepared to sacrifice harmony for fairness. Easterners are more willing to accept hierarchy and group control, whereas Westerners prefer equality and personal development. Asians are more likely to avoid controversy and debate.

Nisbett discusses a range of studies that underwrite these differences.  Asians detect more elements in an environment, whereas Westerners tend to focus on the dominant object (left figure).  Westerners are more likely to classify the cow and chicken together (focus on object classification), whereas Asians group the cow with the grass (focus on relationship).

 

These differences already characterized differences between the Greeks and ancient Chinese. Greeks focused on agency, logic, individual objects and decontextualization. Confucianism and Taoism stressed complexity, constant change, harmony, interpersonal relations and relations of objects with their environment. Children’s education plays a role in perpetuating these differences, as well as differences in the structure of languages.

The preference of Westerners for classifying objects and of Chinese for seeing relationships is reflected in their languages. East Asian languages are highly contextual with words having different meanings depending on their context. East Asian children learn verbs as easily or more easily as nouns, in contrast to Western children.

A preference for logic with Westerners may sound contradictory to the superior achievements of East Asians in international maths and science tests. Nisbett gives following explanations:

1. East Asians don’t have trouble with understanding logical principles, but are less likely to use them in daily life.
2. The Asian superiority is quite recent, with traditional Chinese and Japanese culture focusing on arts, literature and music
3. Asian teacher training is better, with more continuous teacher professional development and fewer teaching hours for Asian teachers
4. Asian students work harder than their Western counterparts, partly due to a stronger belief that success is the result of hard work (growth mindset), rather than innate ability (fixed mindset)

Additionally, there are two major advantages of Asian cognition: first, Asians see more of a given scene or context than Westerners do and, secondly, the holistic, dialectic, Middle Way approach to problems. IQ tests that are used across cultures should therefore not use words. Advantages of the Western cognition are more openness to debate and peer review and less respect for hierarchy.

Globalisation causes a convergence of Eastern and Western values. Eastern parents enroll their children in debate camps and Westerners discover the virtues of Eastern philosophies. Nevertheless, differences are likely to remain for a while.

The Globalization Paradox

Rodrik is a globalization skeptic in the line of Ha Joon Chang. He is not against globalization, but put the mantra of free markets into perspective. Rodrik spends a considerable part of his book on the history of globalization. He focuses on 2 periods of strong globalization.  The first one, between 1820 and the First World War, the increase in global trade was based on imperialist policies, thereby forcing other countries to open their markets and accept unfavorable trade treaties (globalization by gunboat), and on the gold standard, which works fine as long as you don’t have a democracy to prevent the painful internal devaluations that are needed from time to time.  The globalization drive after the second world war was based on the Bretton-Woods system and the General Agreement on Tariffs and Trade (GATT) within a multilateral world order, guaranteed by the US (dollar-exchange standard).  These are the precursors to the World Trade Organisation (WTO), founded in 1995, but are based on different premises. Bretton-Woods and GATT respect the primacy of the nation-state limiting the reach of globalization where it creates conflicts with nation states.  In contrast, the WTO aims towards hyperglobalization, even when it has negative consequences for nation states (e.g,, agriculture, food regulations, financial services) or undermines democratic decision-making within nation states.  Recent economic success stories such as China and South Korea are due more to playing by the Bretton-Woods rules than WTO rules, relying on export subsidies, import tariffs and weak enforcement of intellectual property laws.

Rodrik sees a fundamental trilemma between globalization, nation states and democracy.  You can have two, any two, but not all three. If you want globalization and democracy, you need global institutions, undermining the nation-state.  If you want nation states and democracy, you can’t have deep globalization, as this requires global rules and creates the enormous capital flows that can undermine domestic economies.


Rodrik’s trilemma helps to gain insight in many current politics.  Globalisation causes a power shift to the supranational level, often to non-democratic institutions (IMF, ECB, multinational companies, WTO).  At the same time, many challenges remain deeply national, such as ageing populations, social safety, migration, inequality as a result of winner-takes-all markets.  International mobility of goods and finance makes that nations tend to engage in races to the bottom (lowering taxes, standards) to attract investment and capital. Currently, globalisation and nation states seem to have the upper hand, eroding democracy.  The power of electorates to significantly influence key economic and social decisions has become very limited, such is the disciplining force of international markets.  The rise of populist parties and Brexit are consequences of this democratic erosion.  Rodrik does not consider global democratic institutions realistic and therefore pleads for returning to nation states more power to set their economic and social policies within a set of global “traffic rules”, such as keeping trade imbalances in check. This would require scattering some sand in the wheels of international finance, like a financial transactions tax.

For developing countries, the situation is even more dire. Globalization has a tendency to “freeze” a country’s role in the international division of labor. In a globalized world, countries that live from exporting resources have little incentives to diversify and invest in representative institutions and education level of their population. Secondly, within the WTO system, many industrial policies that were used by developed countries are no longer allowed, such as protection of domestic industries, export subsidies, capital controls, currency devaluations and weak enforcement of intellectual property.  Rodrik reminds us of the fact that the USA and the UK were notable protectionists until their industries were strong enough to stand on their own feet.  Thirdly, manufacturing as a powerful driver of economic development for low-income countries may have run its course.

Manufacturing became a powerful driver of economic development for low-income countries for three reasons. First, it was relatively easy to absorb technology from abroad and generate high-productivity jobs. Second, manufacturing jobs did not require highly skill: farmers could be turned into production workers in factories with little investment in additional training. And, third, manufacturing demand was not constrained by low domestic incomes: production could expand through exports. But manufacturing has become increasingly skill-intensive which has made it very difficult for newcomers to break into world markets for manufacturing.

Exodus: Costs and Benefits of Mass Migration

exodusExodus discusses the costs and benefits of mass migration.  Paul Collier (author of “The Bottom Billion”) looks at migration from the viewpoint of the migrants, the population of the receiving country and the population of the country of origin.  Most people about migration argue either that it is good or bad. They address the wrong question, says Mr Collier. The right one is: how much more migration would be beneficial, and to whom?

Collier identifies 3 factors that determine the migration rate: the width of the income gap (which he sees as a temporay distortion during which prosperity is not yet globalised), the income level in the country of origin and the size of the diaspora (and the absorption rate).  The second factor implies that migration might increase when a country of origin becomes richer, as more people are able to afford the trip.  The absorption rate is the speed with which migrations adopt the norms of the host society.  The rate tends to decrease with the size of the migrant community in a country, as new arrivals have fewer incentives to adopt norms of the host country when there is already a large diaspora network.  Therefore, initiatives (language programmes, geographical spreading, apprenticeship programmes) that help to increase the absorption rate are useful, as they can sustain a higher migration rate.  Such policies explain why the US has a higher absorption rate than France.
Migration makes migrants better off. If it did not, they would go home. Those who move from poor countries to rich ones quickly start earning rich-country wages, which may be ten times more than they could have earned back home. “Their productivity rockets upwards,” says Mr Collier, because they are “escaping from countries with dysfunctional social models”.  This is crucial. Most rich countries are rich because they are well organised, and poor countries are poor because they are not. Nationalism has positive aspects as it enables people to cooperate beyond the family or clan level and to redistribute resources.  Cooperation requires trust and easily breaks down (e.g. free riders) .  As other did (Acemoglu and Robinson), he points to the importance of inclusive (rather than extractive) institutions and trust in the development of a country.  High-trust societies have the institutions and norms that enable development.  France is richer than Nigeria because its social model is superior.  A factory worker in Nigeria produces less than he would in France because the society around him is dysfunctional: the power keeps failing, spare parts do not arrive on time and managers “are busy battling bribe-hungry bureaucrats”. When a rich country lets in immigrants, it is extending to them the benefits of good governance and the rule of law.
What of the countries that receive immigrants? Mr Collier argues that they have benefited from past immigration, but will probably suffer if it continues unchecked.  Continued mass immigration threatens the cultural cohesion of rich countries.  There is a trade-off between positive effects of cultural variety (no real demographic positive effects) and negative effects on social cohesion, but these effects play with different groups in society.  The young, affluent middle classes are the big beneficiaries of variety. In contrast, those people on benefits like social housing or welfare, whether because they are unemployed or pensioners, experience most competition from immigrants and are the most vulnerable to the weakening of cohesion.  Collier refers to the work of Robert Putnam in the US who showed how immigration lead to a decrease of trust, not only between indigenous population and immigrants, but also among the indigenous population (“hunkering down”).  This has effects on people’s willingness to support welfare policies.  A shared sense of identity is a condition for social redistribution.  People need to see people who need state welfare as themselves minus the good luck.
Finally, Mr Collier looks at the effect of emigration on poor countries. Up to a point, it makes them better off, dispelling notions of “brain drains”. Emigrants send good ideas and hard currency home. The prospect of emigration prompts locals to study hard and learn useful skills; many then stay behind and enrich the domestic talent pool instead. But if too many educated people leave, poor countries are worse off. Big emerging markets such as China, India and Brazil benefit from emigration, but the smallest and poorest nations do not: Haiti, for example, has lost 85% of its educated people.

 Collier is quite pessimistic, but it is hard not to see the recent surge in populism and anti-immigration policies as a vindication of his warnings.  As Milanovic did, he suggests looking into ways to give immigrants a special statute (e.g. higher taxes, temporary residency, limited access to social welfare).  These policies might seem discriminatory or harsh, Collier writes, they might be better than the current situation, both for the countries of origin and for the countries of destination.

Global Inequality – Branko Milanovic

Global inequality is composed of inequality between countries and inequality within countries.  We can describe inequality within countries by “Kuznets waves”.  Inequality first rises as a country grows richer and when it has achieved a certain income level, inequality gradually decreases.  The theory fails to explain though why inequality has risen in developed countries since 1990, notably in the US, but also in Europe.  Milanovic introduces the concept of Kuznets cycles, rather than waves.  Benign and malign forces drive inequality up or down. High inequality is unsustainable and creates the seeds for destructive events that reduce it, but in their wake also destroy much else.
Forces that push inequality up are:
  • higher returns on capital than labour (Piketty factor)
  • high incomes from labour and capital are increasingly concentrated in the same peoplez
  • technological innovation that favours the rich (capital rents, higher wage dispersion)
  • decreasing power of unions (due to changing labour markets)
  • high availability of labour (opening up of China, India and USSR in 1990s)
  • increasing scalability and emergence of more winner-takes-all markets (e.g. education)
  • capture of political process (democracy) and media by the rich
  • monopolisation of sectors
Forces that reduce inequality are (malign or benign)
  • investment in public education
  • redistribution of wealth through progressive taxes or social programmes
  • wars, epidemics and natural disasters (World Wars or the Plague in medieval times)
  • scarcity of labour (can be reduced by immigration)
  • technological innovation that favours the poor (speculative)
Although inequality has been rising in developed countries, at the global level it has been decreasing for quite some time.  This is mainly due to the rise of China and, to a lesser extent, other Asian countries (India, Indonesia, Vietnam, Thailand).  This has come mainly at the expense of the lower middle class in Western countries.  The figure below shows how the 99th percentile (global plutocrats) and 50th-60th percentile (upper middle class in Asia) has done well during the last 20 years, whereas the 80th-90th percentile saw its income stagnating.  He notes that, as China grows richer, it will in the near future contribute to global inequality, rather than being a reducing force.

Lower inequality between countries reduces the “citizenship rent”, the importance of where one is born for whether will be rich or not. This does not mean that the “lottery of birth” becomes less important, as social mobility within countries has been decreasing.  However, in our (Western) discourse about rising inequality, it is important to note that on a global level, inequality is actually going down.  The decrease is mainly due to the rise of Asia, Africa is not contributing at all.
Milanovic discusses some of the consequences of high inequality.  On migration, which he sees as an inevitable consequence of globalization, he advocates (as Collier does) for limited access to citizenship rights (temporary worker status, higher taxes) to compensate for their higher productivity as a result of migration and access to a superior social model.  On politics, he sees plutocracy (the US option) and populism (the EU option) as consequences of high inequality and the reduced size of the middle class. A smaller middle class results in lower support for public services such as health and education and more attention for internal security and defense.  The slide away from democracy is masked by shifting attention to issues such as nationalism and identity and by overestimating social mobility.  He refers to the work of Jan Tinbergen who showed how returns on education are highest in poor countries, where few people have access to higher education.  In developed countries, access to education is widespread, the return decreases, but connections and sheer luck determine who gets access to well-paying jobs.
Milanovic present an impressive range of data and charts to make his case.  It is not an optimistic book, as he doesn’t see many benign forces that are strong enough to reduce inequality, especially in the US.