The Euro Crisis and its Aftermath (Jean Pisani-Ferry)

$_35Until 2013, Pisani-Ferry was the director of Bruegel, a think-tank.  In his book Jean Pisani-Ferry recalls the story of the euro from “the day it ceased being boring” and explores the underlying causes of the euro crisis.

The introduction of the euro was intended to create a forefront for more political and economic harmonisation among the adopting countries.  However, in the mid-2000s, it became gradually clear that national economies were diverging rather than converging.  Northern European economies like Germany were doing penance, running surpluses and accumulating savings, while countries in Southern Europe (incl. Ireland) went through a period of euphoria and saw consumption and debt rising.

After the introduction of the euro, these countries experienced a ‘golden decade’. They experienced a strong drop in interest rates, which reduced their debt burden and opened credit floodgates.  Resulting increases in wages and prices created higher inflation than in the northern countries.  Interest rates were the same across the Eurozone, but prices of nontradable goods and services such as houses and restaurant meals were not.  As a result, inflation rates were also not the same and the real cost of credit (the difference between the interest and the inflation rates) was much lower in the southern countries and Ireland.  In Spain, poor households bought houses they could hardly afford, helped by the now infamous cajas, the regional savings banks, creating their own version of the subprime crisis.

Then, on 16 October 2009 the euro stopped being boring.  That day, Greek prime minster George Papandreou confessed that Greek debt and deficit numbers were much worse than reported.  Investors suddenly realised that Greek debt was more risky than German debt and the spread between the two rose to 4%.  Greece revealed the incompleteness of the European construction and the strong disagreements about how to complete its architecture.

The negative feedback loop between banks and their sovereigns (countries) became apparent, the so-called ‘doom loop’.  Why is this relation problematic? Banks usually have large portfolios of debt issued by their countries.  At the same time, they depend on their sovereign for assistance in case things turn sour.  When investors doubt a country’s guarantee to save its banks, these banks can see their capital flows come to a sudden stop.

An example. The Spanish state was borrowing from the Spanish commercial banks which, in turn, borrowed from the Spanish central bank, which, in turn, borrowed from the ECB.  Meanwhile, private money flowing out from Spain was being deposited with German (or other northern European) banks, which, in turn, deposited it with the Bundesbank, which in turn lent it to the ECB.  The European system of central banks had become a sort of gigantic artificial heart that pumped back into southern Europe money flowing out from it in search of northern safety (p.145).

“Banks may be European (or global) in life, but they remain national in death.”

This explains why Ireland, with a debt-to-GDP ratio of only 25% got into problems. Its banking system was 8 times the size of its GDP.  Similarly, Spain’s problem was not a fiscal one, having low debt and running current account surpluses.  Its problem was that Spanish banks accumulated lots of loans that became non-performing when real estate prices plunged.  Add to this that the housing boom in Spain created a very unbalanced economy in which the non-tradable sector had expanded beyond reason at the cost of the tradable-goods sector.

Overall, debt levels and deficits in the Eurozone are much lower than those in the US or Japan.  What makes Eurozone debt vulnerable (less internal debt), faces a grim long-term demographic outlook (low fertility rates and not enough migration) and faces a lack of competitiveness (in the south).

Pisani-Ferry describes how Eurozone leaders throughout the crisis devised piecemeal solutions that were time and time again overtaken by reality.

The introduction of a common currency removed external devaluations as a way to inflate away debt and restore competitiveness as a tool from the toolbox. Milton Friedman compared devaluating a currency with daylight saving time.  It’s much easier to change time than to ask everyone to change their habits. In the same way, when a currency is overvalued, it is easier to devalue the exchange rate than to modify all wages and prices individually. By entering the Eurozone, member countries gave up this popular weapon, leaving them only the painful option of internal devaluation.

Much has been achieved since the outbreak of the euro crisis.  Under massive market pressure and by overcoming deep divisions, countries have agreed on new rules and created new institutions.  These solutions increased the power of the European institutions.  For example, the Commission received an ex-ante near-veto on national budget plans, including automatic sanctions for sinners. However, as economic prospects have improved, the political sentiment has clearly deteriorated.  Politics lag behind economics, which in turn, lag behind market developments.

On the other hand, solutions so far have only been found under the pressure of urgency and in an attempt to avoid the worst.  In Pisani-Ferry’s words, Europe has consistently displayed a strong sense of survival, but it has equally consistently failed to display a sense of common purpose (p.175).  The sense of survival comes from a realisation that a unified Europe is the only chance for Europe’s nations to remain significant actors in the world economy and to contribute to the shaping of global rules. The main challenge of European policy makers is to chart the road to continued relevance and to convince European citizens that it is the right road to take.

So far, solutions for the Eurozone crisis (financial firewall, fiscal treaty, building blocks of banking union) have much of an adhocracy.  Decisions on policy moves were not taken on the ground whether they would improve outcomes, but whether they were needed to avert disaster, like house owners only contemplating repairs when the house is about to collapse.

For Pisani-Ferry, a sustainable solution to deal with all the following aspects:

  1. The ECB’s inflation mandate of an average inflation rate across the Eurozone close to 2% implies a higher inflation rate in Northern Europe for several years.  During the first 12 years of the Euro, inflation rates were higher in Southern Europe.  The correction process has started for wages, but prices lag behind in the South because of the high cost of credit and the fact that many sectors are not open to competition.  A side effect of low interest rates is that non-functioning firms still get access to cheap credit, preventing the process of creative destruction, which would reduce supply, allowing others to raise prices, resulting in inflation.
  2. The EU’s budget comprises 1% of its total GDP and negotiated (and fixed) for periods of 7 years. This leaves little room for flexibility.
  3. For the dollar, US Treasuries are the safe assets.  For the Eurozone, 10-year German government bonds (‘Bunds’) are the de facto safe assets. This is an advantage (‘rent’) for Germany, as it can borrow money at lower rates than other countries. Because of this privilege, Germany should take up special responsibilities such as acting as an insurer for the whole Eurozone or sharing this rent with other countries through issuing Eurobonds.
  4. Gradual acknowledgement of reality of unsustainability of Greek debt, acceptance of debt restructuring and design of systematic way of dealing with debt crises.
  5. Acceptance of ECB as a lender of last resort.
  6. Strengthen the democratic character of the EU.  Germans, for example, are particularly underrepresented in the parliament in comparison to citizens from smaller countries.
  7. Governance reform.  The most important one.

“The euro area is not equipped with a government, but with a series of partial powers.  The ECB has decision-making capacity in its important, but limited domain (it makes full use of it).  The Commission has been given a defined mandate of oversight of national policies (it generally fulfils it) and a broader mission to chart a way through the policy challenges (it sometimes fulfil it and sometimes forgets it). Berlin exercises leadership (or not).  Paris tries to balance it (effectually or not).  Bratislava or Helsinki insists on specific points that are close to their hearts (and generally push through a minor concession).  Rome matters when the prime minister has stature (not always the case).  And the president of the Eurogroup chairs the meetings of finance ministers (and does little more).  Europe’s governance is reminiscent of Blaise Pascal’s definition of the universe: a sphere, the centre of which is everywhere…” But unlike Pascal’s universe, few observers, if any, see the hand of God in its design” (pp.165-166)

Currency unification has led European states to an unknown territory in which national borders are less defined as they used to be.  The euro has created a community of fate.  The EU and the Euro zone need a common vision on their future.

Basically, there are two models for the Eurozone:

  • An agglomeration model that accepts concentration of activities in certain areas, for example manufacturing in northern Europe.  This model comes with mobility of labour, portable social rights, acceptance of national current account deficits and surpluses and a full banking union.
  • A rebalancing model that focuses on limiting differences among countries.  This comes with attempts to southern re-industrialisation. This is the logic of the Structural Funds.

The agglomeration model is economically more efficient.  Not every country is good at everything and the agglomeration model stimulates countries to specialise.  However, this model is likely to lead to wider (but not necessarily permanent) disparities in GDP/person and would require euro-area-wide taxation and transfer systems. Also, the agglomeration model requires a stronger political community, something which still needs to materialize, if it ever will.

A permanent solution for the Eurozone’s travails would need to answer fundamental questions about the union:

  1. Are countries and their citizens prepared to embrace a degree of labour, product and capital market integration that is needed for a monetary union to function?  Current discussions about the scaling back the Schengen union and the rise of extreme right suggest not.
  2. Are countries and their citizens ready for a fundamental redefinition of the fiscal framework that would create a predictable regime for state insolvency and introduce a degree of risk-sharing through the partial mutualisation of sovereign liabilities?
  3. Is the euro area willing to accept a degree of contingent redistribution across countries or even individuals in order to help smooth adjustment within a monetary union, for example through a common budget or through contingent transfer mechanisms?
  4. Is the euro area for institutional reform that would equip it with effective decision-making capacities (and budget) within it fields of competence?

In a democracy, power should be limited, but not weak (Tommasso Padoa-Schioppa)

Pisani-Ferry’s book tremendously helps to put the Euro crisis into perspective.  It enables the reader to understand the causes and the responses. In my case, it helped to change my opinion that the crisis was not so much (only) a consequence of southern (mainly Greek) profligacy, but a result of economic imbalances resulting from an incomplete monetary and fiscal union.

Thinking, Fast and Slow: the marvels and flaws of intuitive thinking

Intelligent gossip at the water cooler.  That’s the ultimate goal for Daniel Kahneman, author of the widely praised Thinking, Fast and Slow and recipient of the Nobel Prize in Economics.  cover Thinking fast slowPeople are not rational, but rather not-quite-rational human beings, their behaviour driven by two inner “agents”:  system 1 and system 2.  System 1 acts automatically and quickly, works with little or no effort and without any sense of voluntary control.  Unfortunately, it isn’t particularly strong in logic and statistics.  System 2 corresponds with who we think we are.  It is responsible for our effortful mental activities and can override the intuitive conclusions from system 1.  People are prone to cognitive biases and faulty decision-making, because system 1 kicks in before the more rational and logical system 2 is engaged.

“Although System 2 believes itself to be where the action is, the automatic System 1 is the hero of this book.”

Most of the time, we rely on the mental shortcuts of our system 1.  It is inexhaustible, unlike the limited capacity of system 2.  Paying attention can actually be taken quite literally.  Ego Depletion not only occurs through mental effort, but also through emotional temptations.  Kahneman recalls  the Oreo Experiment where 4-year old children’s ability to resist the immediate temptation for one Oreo biscuit for a two Oreos after 10 minutes turned out to strongly predict later success in life.

In the book, Kahneman vividly describes a wide range of systematic errors in our judgements and choices.  Rather than rational beings, our judgements and choices are affected by a whole variety of biases and fallacies.  An important characteristic of our system 1 is basing decisions on information that we see or that is immediately available. “What you see, is all there is” (WYSIATI).  It explains availability bias, the tendency to overweigh personal experiences, dramatic events (plane crashes!) and things that attract media coverage.  WYSIATI explains priming and halo effects.  The halo effect is our tendency to give a disproportionately high weight to first impressions such as a handsome and confident speaker.  The effect of recent exposure to information on our judgement is the priming effect.  It explains how  volunteers walk more slowly down a corridor after seeing words related to old age, or fare better in general-knowledge tests after writing down the attributes of a typical professor.  Anchoring is a form of priming explains why it’s a bad idea to let the salesman set the starting price when bargaining.  Overconfidence is another manifestation of WYSIATI.   When we estimate a quantity, we rely on information that comes to mind, neglect what we don’t know and construct a coherent story in which our estimate makes sense.  90% of car drivers think they are better than average.  We also focus on what we want and can do, neglecting the plans and skills of others.  Add to this the fact that uncertainty is not socially acceptable for a “professional”.  Another way our lazy System 1 operates is through substitution.  It replaces a target question with a heuristic question.  “How happy are you in life?” becomes “What is my mood right now?”

kahneman2

Our system 1 is pretty bad in statistics, especially in calculating probabilities.  The Law of Small Numbers refers to our tendency to ignore that small samples are much more likely to generate extreme outcomes.  It explains our bias to pay more attention to content than its reliability (sample sizes are rarely mentioned).  Another example is base rate neglect (planning fallacy).  A good example is that people, when given a person’s character description that resembles a librarian, are likely to think that that person will be a librarian, rather than a teacher, without accounting for the fact that there are much more teachers than librarians.  Base rate neglect means that we often exaggerate intuitive impressions of diagnosticity, rather than sticking close to the base rate.  Another example is confuse the probably with the plausible.  Our associate machinery likes to construct plausible stories from past events, rather than admitting it was all just a coincidence.  Adding detail to a description makes it more plausible, but less probable.  Upon reading a description of a woman called Linda, subjects rated it more likely that Linda was a bank teller who is active in the feminist movement than that Linda was a bank teller.

I am particularly fond of this example [the Linda problem] because I know that the [conjoint] statement is least probable, yet a little homunculus in my head continues to jump up and down, shouting at me—“but she can’t just be a bank teller; read the description.” source

Stephen Jay Gould

Our unwillingness to deduce the particular from the general is only matched by our willingness to infer the general from the particular.  Whether it’s about helping people in need or stock picking, when confronted with statistics, people are very reluctant to accept them, claiming they are different.   Conversely, coherence bias makes that people are very quick to draw general conclusions from events that happen in their neighbourhood.  WYSIATI!

People who claim to rely on their intuition are using their System 1.  People who are powerful (or made believe that they’re powerful), knowledgeable novices, in a good mood and have had a few successes are more likely to rely on their intuition.  Intuition makes only sense in a predictable environment and where skills are learnable through prolonged practice and lots of feedback.  Chess is an example.  Stock picking is not a good example, as it’s a low validity environment.  When asked for his favourite formula by Edge, Kahneman chose:

Success = talent + luck

Great success = little more talent + a lot more luck

We tend to overestimate talent and underestimate the role of luck.  Regression to the mean explains why highly intelligent women will marry less intelligent men and why winners of the ‘Golden Ball’ are likely to perform worse the year after.  A great achievement or misfortune is due to luck more than anything else and is unlikely to be repeated the year after.  Nassim Taleb speaks about the illusion of validity, the tendency to create ‘stories’ that ‘make sense’.

Prospect theory (for which Kahneman was awarded the Nobel) shows how choices we make are based on utilities rather than expected values. We respond stronger to losses than to gains (most people twice as strong).  prospect theoryEndowment effects make that the coffee mug we get for free, becomes more valuable once we have it.  It shows how we overweight (or completely neglect) unlikely events (possibility effects) and how a small probability of no success reduces its utility value disproportionally.  We are risk averse for our gains and risk seeking for our losses.  This explains how we keep buying lottery tickets and how insurance companies make profits.  In stock trading, we tend to sell winners and keep losers.  Often, it’s better to cut your losses, rather than waiting and hoping for breaking-even.  The best way to deal with our fallacies in low validity environments is to rely on formulas, standardized factual questions and to avoid inventing ‘broken legs’ (exceptions to your rules).

If that’s not enough, our memory, upon we base our decisions, suffers from quirks such as duration neglect and peak-end rule.  These were strikingly illustrated in one of Kahneman’s more harrowing experiments. Two groups of patients were to undergo painful colonoscopies. The patients in Group A got the normal procedure. So did the patients in Group B, except a few extra minutes of mild discomfort were added after the end of the examination. Which group suffered more? Well, Group B endured all the pain that Group A did, and then some. But since the prolonging of Group B’s colonoscopies meant that the procedure ended less painfully, the patients in this group retrospectively minded it less.

As with colonoscopies, so is it with life. It is the remembering self that calls the shots, not the experiencing self. Our memory of our vacations is determined by the peak-end rule, not by how fun (or miserable) it actually was moment by moment.

“Odd as it may seem, I am my remembering self, and the experiencing self, who does my livinkahnemang, is like a stranger to me.”

Are we really so hopeless? We can’t turn off our system 1 and Kahneman acknowledges that he’s just as prone to its pitfalls as anyone else.   However, being aware of biases and fallacies helps to recognise situations where it’s a good idea to sit down and involve your system 2.  There are some useful techniques as well.  Before taking an important decision, it’s a good idea to organise a pre-mortem meeting, a thought experiment where participants imagine they are a year into the future and implemented the plan as presented.  However, the outcome was a disaster and participants write a brief history of that disaster.  Pre-mortems help to legitimise doubt and encourage even supporters of the decision to search for possible threats.

Findings of behavioural economics find their way into policy and our daily life.  Both the UK and the US have
a government unit dedicated to applying its principles into policy making.  It helps explaining why personal stories trump numbers in global development and why education should focus on educating learners to be disciplined thinkers with knowledge of decision-making skills and principles of probability, choice theory and statistics.

Everyone should read Thinking, Fast and Slow.  It’s an astonishingly rich book: lucid, profound, full of intellectual surprises and self-help value.

Computers in Schools: Why Governments Should Do Their Homework

Time and time again, governments and NGOs herald the purchase of ICT as a panacea for improving the quality of education. The recent plans of Gauteng in South Africa are a good example. This study from the Inter-American Development Bank (IDB) provides an useful summary of the research done on the impact of ICT in primary level classrooms.  Latin America and the IDB have been at the forefront om some high-profile “One Laptop per Child” projects such as the Plan Ceibal (Uruguay), Enlaces (Chile) and the OLPC Programme in Peru, on which I blogged before.

Some extracts:

The evidence so far is quite persuasive that programs that overlook teacher training and the development of software may yield low returns.

One promising avenue lies in the use of ICT to realise productivity gains in school management:

The collection, transmission, and analysis of data on enrollment, absenteeism, test scores, and infrastructure can help principals spot a problem in a given classroom, administrators spot an exemplary school, and policymakers track the performance of the educational system and the resources available. However, the gains in productivity seen in the business sector are rarely seen in the educational system, some have argued, because most education managers are not knowledgeable in the use of information management tools.

Studies that measured the impact of ICT, both of the access to computers and the use of computers, found more often than not no significant impact on learning outcomes – an overview is included in the report.  The authors note that it’s not sufficient for ICT investments to produce a positive impact, they should produce a positive impact compared to traditional instruction and, even better, to similar investments in other areas such as teacher training, smaller classes or libraries.

All other things being equal, the impact of ICT investments will be higher when the quality of teaching is low, as the potential for learning gains is higher. This underlines the risk of extrapolating findings from developed to developing country context.

Some recommendations from the report:

  • Given the high investments, the low number of decent impact studies is surprising.  The impact of ICT investments heavily depends on the context and on the implementation.  As such, results from impact studies cannot be generalized over different programmes.  Start on a limited scale and build impact evaluation into the programme design is important.
  • Important to keep the Total Cost of Operation (TOC) of ICT investment into account rather than the purchase price. This includes maintenance, training, connectivity and electricity costs.  Recurrent costs typically take up about 40-50% of the initial investment (in Latin America).  These are permanent costs, which imply savings elsewhere in the education system or an overall increase in expenditure. A large share of rural schools, high electricity and connectivity costs and high wages (as in South Africa) thus increase the share of recurrent costs.
  • Most successful ICT project implementation focus on honing ICT skills of learners and pursuing Computer-Aided Instruction (CAI), for example for maths.

Piketty and Inequality in South Africa

Every month, hundreds of children are fleeing abject poverty in Zimbabwe and heading to South Africa. It’s a dangerous journey, but many take the risk in the hope of a better life. But once on the other side, there is help. With the support of UKaid from the Department for International Development, there is food, shelter and the chance to go to school. Find out more in our feature: www.dfid.gov.uk/musinaSouth Africa is a very unequal country.  It has one of the highest Gini coefficients in the world, in particularly since various Latin American countries managed to bring their coefficients down in recent years.  It should be noted that the Gini coefficient is an indicator of inequality in income, not in wealth.  However, given South Africa’s history of Apartheid and colonialism, including wealth into the equation is not likely to reduce inequality.  Conceded, the Gini coefficient also ignores progress that has been made in the provision of basic services to the poor in housing, electricity provision, healthcare delivery and education infrastructure.

Why does inequality matter? A certain degree of inequality may well be positive for society.  It stimulates people to find their talents and get the best out of them.  However, too much inequality poses various problems.   It’s morally indefensible that some people earn orders of magnitude more than others, whatever their skills. There’s also research that points to negative political effects of high inequality.  In unequal societies democracy tends to be hollowed out as decision processes are captured by a tiny elite, the masses are powerless and become disentangled and the social state is dismantled.  No longer “having skin in the game”, they vote for extremists.  Economically, high inequality reduces consumption, compared to a more even distribution of means.  High inequality also reduces social mobility, wasting talent.

Economists disagree on the evolution of inequality.  Kuznets argued that in the initial stages of development, a country becomes more unequal.  Some people move from poor to rich and compared to (almost) everyone being poor, this constitutes more inequality.  As more people grow rich, inequality would drop.  This view was challenged by Piketty in his book Capital.  Piketty’s central thesis is that inequality naturally rises within a capitalist system, because the rate of return on wealth exceeds that of income (or economic growth).  Rather than focusing only on equality of opportunity, Piketty shows that we should also worry about the inequality of outcomes.  Piketty’s thesis has drawn both praise and criticism.  Most critics acknowledge that inequality is rising, but dispute whether it’s an inherent characteristics of capitalism or whether they are other factors at play, such as globalisation and its tendency for delocalisation and winner-takes-all markets and automation, threatening many low-skilled and medium-skilled jobs.  Piketty favours the ‘utopian’ solution of a global, progressive wealth tax. Awaiting utopia, progressively taxing income and property may help.  Piketty argues that insufficiently progressive tax rates are at the basis of skyrocketing top wages.

How relevant is Piketty’s analysis of inequality for developing countries?  South Africa, with 1% of the population earning 15% of total labour income and with two thirds of the population living in poverty, seems like a good illustration of Piketty’s thesis.  Economic growth has been anaemic for years, whereas income from property and assets have been rising.  High youth unemployment and lack of unemployment benefits are one driver of inequality.  A second is the high wage gap within the workplace.  The low quality education system churns out too many unqualified people and too few qualified ones. For maths, only 3% of Grade 9 learners achieve a score higher than 50% at the latest Annual National Assessments (ANAs) and 90% remain stuck in the lowest category, which indicates a total lack of basic numeracy.  As a result, skilled people can command a premium and the former remain stuck in menial, poorly-paid jobs.  High inequality gradually erodes democratic institutions and public services are steadily privatized.

In other developing countries the situation is opposite. High inequality in countries such as Cambodia is rather the result than the cause of weak public institutions.  An effective administration to collect taxes, regulators to deal with monopolies and anti-corruption watchdogs, an impartial justice system are absent favouring a corrupt elite.  In this case, taxing the rich more will not help. Only building more effective institutions can address this.  This extends beyond nation states.

Solutions need to be found on a global scale.  Unfortunately, global governance institutions such as the WTO, WHO and the IMF provide global public goods, but suffer from a lack of democratic legitimacy, especially in developing countries.  Strengthening legitimate and global governance may help to address global inequalities.

Piketty’s book focuses on advanced countries, but the wealth of discussion it has triggered includes plenty of analysis of its relevance for developing countries.  Rising inequality within and between states is one of the defining themes of our times, partly causing and caused by Piketty’s work.

More information on the relevance of Piketty’s book for resp. developing countries and South Africa in particular can be found here and here.  Both articles are well recommended.

The picture at the top of this post is courtesy of DFID and is released under an Attribution-NonCommercial-NoDerivs 2.0 Generic license.

Antifragile

talebA freely operating restaurant market will benefit from competition and the variety of consumer tastes.  A restaurant that goes bankrupt doesn’t threaten to bring down the whole system, but rather provides a learner opportunity for the others.  Therefore, small errors by restaurants are actually quite likely to make the system stronger.  That’s why guesthouses in tourist hotspots like Bali or Siem Reap offer such good value compared to little-visited places like Padang or Kampong Cham.  Such a creative-destruction-driven system is antifragile, argues Nicholas Nassim Taleb, an essayist and former financial trader.  Antifragile systems are systems that benefit from disorder, unlike fragile systems (that are harmed by disorder) or robust systems (that are immune to disorder).

Natural evolution is a good example of an antifragile system.   Small mutations in genes and variations in the natural environment change survival and sexual reproduction success rates, driving evolution.  When a species goes extinct, its ecological niche is quickly filled by another.  Variation prevents the system from collapsing with minor changes.  Many human-created systems are rather fragile: centralized states, too-big-to-fail conglomerates and banks and education systems.  Imagine that bankrupt restaurants would be bailed out by the government, what effect would it have on the quality of food?

“Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.”

Taleb prefers Swiss-like city states to national governments, small and medium-sized enterprises to large corporations and entrepreneurs to bureaucrats with no “skin in the game.”  Personal interest or “skin in the game” is a key ingredient for successful systems.  A trader who works with others’ money will take more risks.  Taleb derides academics and journalists who can write and make predictions and experience no harm if they turn out to be false, but just continue to make other predictions. He suggests linking their salary to their predictions. Conversely, a teacher who lives in the local community where he/she teaches, has “skin in the game” through accountability.  Bringing skin in the game can be done by invoking the ancient Hammurabi’s Principle, for example by beheading architects if a bridge they built collapses.

Academics are not Taleb’s best friends, due to their tendency to theorize things that practitioners have already found out long ago.  Whereas teachers have developed the tacit knowledge to teach, academics usually either develop theory to fit practice or aim at proving what is already known to practitioners under the misnomer of ‘providing evidence’.  Taleb believes rather in trial-and-error and experience-driven heuristics and definitely condemn South Africa’s centralized attempts to improve education, such as nation-wide curricula, national annual assessments and its central point-based system for continuous professional development.  An antifragile education system enables students to deal with lots of information from a variety of sources, as happens in connectivism and the cMOOCs:

Connectivying a course empowers, exposes and trains students to be more effective and more literate network citizens. Enhancing such capability allows our students to be more resilient and become antifragile!  – Terry Anderson

An interesting part of the book is when Taleb’s links fragility to interventionism.  In the face of problems, people like to ‘do things’.  People tend to over-intervene on small things and under-intervene for large things.  According to Taleb, it’s better not to visit a doctor unless you’re very sick. And if you’re really sick, it’s best to directly visit five.  Interventionism makes systems more vulnerable for large shocks, and thus weaker.

Strong systems are characterised by optionality, redundancy and variability.  In contrast, humans often try and design systems that exclude all variability.  Assad’s Syria and Mubarak’s Egypt offer pseudo-stability, unable to adapt and blowing up in the face of change. An education system with these characteristics would probably be a decentralized one, with large responsibility (and accountability) for directors and teachers, openness of information and freedom of choice for parents.  Optionality refers to leaving as many options open as possible (hedging your bets) and redundancy refers to the tendency to plan based on past events, rather than improbable events.  This 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. Focusing on the outliers and considering action against climate change as an insurance against uncertainty, or keeping your options open, makes more sense than focusing on what constitutes a ‘safe’ threshold.

“Many people keep deploring the low level of formal education in the United states (as defined by, say, math grades). Yet these fail to realize that the new comes from here and gets imitated elsewhere. And it is not thanks to universities, which obviously claim a lot more credit than their accomplishments warrant. Like Britain in the Industrial Revolution, America’s asset is, simply, risk taking and the use of optionality, this remarkable ability to engage in rational forms of trial and error, with no comparative shame in failing again, starting again, and repeating failure.” – Nicholas Taleb

The book is a series of essays exploring various aspects of antifragility, drawing examples and anecdotes from a variety of fields.  Taleb’s erudite ranting can be annoying at times, but it’s interesting and fascinating enough to keep reading. The style and examples make the book more memorable as well and its insights are applicable to many fields, including education, which I tried to do above.  It’s a book that makes you thing, rather than presenting its ideas in ready-made format.  Well recommended a read. And another one.

Migration and Development

downloadA very interesting interview with Michael Clemens, migration expert from the Centre for Global Development, a US think thank.  What would happen if Europe (quite utopically) would decide to open up its borders?  Some key extracts:

On why people migrate:

Safety and opportunity depend mostly on what country you live in, and 97 percent of humanity lives in the country they were born in. For those of us born in safe, prosperous countries, such a random lottery seems quite satisfactory. Most migrants are people who have simply decided that they will not let lottery results enforced by others determine the course of their lives.

On the impact of migration on the host country:

I would go as far as to say that this is a consensus opinion among economists. That is saying a lot, because economists are known for putting caveats on everything. But all the serious evidence we have points to large gains in overall economic activity from reduced barriers to labor mobility. Ninety-six percent of American labor economists agree that the economic benefits of US immigration exceed the losses.

Unfortunately, this research is rarely used as the basis for a debate.  Instead, nasty arguments like ” if we allow them, many more will come”, tend to be accepted as truth.  What I didn’t know, is that research shows that immigration increases wages for low-skilled labour, rather than depressing them:

Research has shown that natives acquire more skill when immigration rises [by specializing in occupations requiring more complex tasks and less manual labor]. And firms adjust their investments when immigrants are present, shifting away from technologies that eliminate low-skill jobs for both low-skill immigrants and low-skill natives. Most simply of all, foreign workers are not just workers, they are also consumers. Immigrants at low wages tend to consume products, like fast food and budget clothing, that are made and sold by other low-wage workers.

This relates to the work of Ricardo on comparative advantages in trade. Countries with a lot of labor relative to capital, for example, will tend to have a comparative advantage in labor intensive goods production. Apart from human rights and social justice arguments, letting in more migrants makes economic sense, in particular in greying Europe.  Rather than fearing that immigrants will plunder social security coffers, the question is whether European welfare systems will collapse without immigrants:

A comprehensive review by the independent OECD in 2013 found that the average immigrant household in Europe contributed over £2,000 [$3,000] more in taxes than it took in benefits.

The most interesting argument in my eyes, is how often a mindset that considers migrants as people who somehow not belong where they are, is used in case of cultural tensions.  The tensions are explained as a result of migration, rather than as a responsibility of the host country.  The mindset becomes a self-fulfilling prophecy.   Clemens clarifies the point with a good analogy:

Suppose a woman is attacked by men on the street, as she walks to work. What caused the attack? It depends on your assumptions. Many people in the world do not believe that women have the unqualified right to work or to walk down any street. These people might say that the cause of the attack was that the woman’s family allowed her to take a job and walk around unguarded. If you believe that women’s rights to work and travel are beyond question, you might identify a different cause of the attack: The cause of the attack was that men decided to attack her.

Likewise, when activists hold rallies to unmistakably threaten immigrants with violence, many might describe this as social conflict “arising” from immigration. This view requires you to already have decided that migrants don’t have the right to be there—for the same reasons that saying attacks against women arise from their presence on the sidewalk requires you to have already decided that women don’t have the right to walk on the sidewalk.

Finally, how about the effects on the origin countries?  Brain drains leaving countries with few qualified doctors and engineers.  Or, the important role of remittances, many times bigger than aid, on development? Clemens underlines that immigration is different from actively recruiting people in developing countries:

So if we’re talking about immigration policy, the question “Does migration substantially harm low-income countries?” is the same as the question, “Does forcibly stopping people from leaving low income countries substantially help those countries?” To put it mildly, social science has absolutely no evidence of such a effect.

People in developed countries often see the wealth and opportunities in their country as a right, rather than as a stroke of luck, as if they have any credit in being born in a rich country.  Given the fact that countries such as Lebanon (4 million people) and Jordan (6,5 million people) each can take one million Syrian refugees, a good starting point for European countries would be to increase the numbers they’re willing to accept each year.  Articles and arguments such as this deserve to be widely read.

Insider Accounts on South African Education

IMG_1696When it comes to education, South Africa is a hard nut to crack.  Inequalities in the system are enormous. Socio-economic status remains the most important determinant of educational outcomes in South Africa.  Educational quality in historically black schools – constituting 80% of enrolment – has not improved since political transition, despite large resource transfers to such schools.  A recent study found that when comparing 27 factors affecting school performance in dysfunctional and functional schools, only 5 were overlapping between the two groups, confirming the notion of two education systems within one country.

This also corresponds with an urban-rural divide.  Most ‘well-performing’ schools are located in towns. Long ago, these used to be “whites only” schools. Most underperforming schools are located in townships and rural areas. These schools have to deal with many issues. The division between the town and township schools is one of the legacies of Apartheid.

Two internship students spent their internship in two of the notoriously ill-equipped and poorly performing township schools and regularly wrote down their impressions.   Their impressions resonate well with the findings of the recently published report from the National Education Evaluation and Development Unit (NEEDU).  This (allegedly withheld) report provides an outspoken analysis of the education system, based on numerous visits and interviews.  We have linked the two sources, quoting from the students’ writings and linking them to findings of the NEEDU study.

First, no resource is more poorly used in South African schools than time.  The NEEDU report highlights high levels of teacher absenteeism and late coming in schools.  A fifth of teachers are absent on Fridays, rising to a third at the end of the month.  In many schools, principal and staff fail to build systems which drive the work of teaching and learning:

Our students wrote:

“We had the impression the principal does not check which teachers are present at what time at school. There is a register which teachers should sign upon arrival and departure. However, this is not a good indication since teachers can sign it the day after or when they didn’t arrive (in time).  Many teachers in our schools are quite relaxed about getting to class in time. They go to their classes 5 minutes late, 15 minutes late or sometimes not at all, it doesn’t seem to make any difference.”

Moreover, schools face extracurricular disruptions. According to NEEDU, 28% of teachers and principals face these disruptions frequently and another 38% occasionally, in particularly in large rural schools.  Late coming by teachers sets a bad example for learners and learner late-coming is a serious problem in 40% of schools and a moderate one in a further 35%.  Lessons are also often interrupted:

“Staff meetings often take place during school hours, whilst the teachers should be teaching. Learners are just left in the classroom without any form of guidance, tasks or supervision. In our schools, we haven’t seen any systematic plan in place to cover for absent teachers.”

The NEEDU report also refers to the fact that teachers consider the generous allocation of sick leave for cases of prolonged sickness as a right to be taken in full.  Ample time for system-wide assessment, including the Annual National Assessments (ANAs) in September further reduce time for teaching.  Additionally, time in classroom is often not used effectively, resulting in low ‘time on task’.  As the students recall:

“While a teacher is writing exercises on the blackboard, learners are idling, and they are only allowed to start copying once the teacher is finished. If learners finish their exercise before others are ready, they wait until everyone is finished. Again they sit idle until the correct answers are written on the blackboard, after which they copy.”

This shows the potential for small, incremental interventions with potentially huge impact on learning, much as what Doug lemov advocates for in ‘Teach Like a Champion’.

Under the Integrated Food Security Strategy, 9 million learners from grade R to grade 7 receive a daily meal at school.  For many it’s their only meal per day.  Unfortunately, the delivery and management has been a hit-and-miss affair in recent years.

“Many learners only get their first meal for the day at school after half past 10. When you are hungry it is difficult to focus.  And why distribute the food during periods teaching time? Why not distribute food for all learners during the long break?”

Another challenge the students observed was the lack of content knowledge and teaching skills in many teachers.

“The lack of content knowledge leads to teaching mistakes. We have seen this happen. We saw bright learners ask some questions about these mistakes, but teachers reacted angrily and ignored the mistake made. Teachers seem to be confident despite their lack of content knowledge.  The HOD for mathematics had very little mathematics understanding. It must be extremely difficult in such a position to motivate, oversee, guide and improve the other teachers.”

This lack of content and pedagogical knowledge with teachers has been extensively documented in recent years.  Grade 6 math teachers in rural schools scored second from the bottom for their content knowledge in a study of 14 African countries, outperforming only their Zambian counterparts.  The World Economic Forum ranks South Africa’s primary education system 132nd out of 144 countries—and last in mathematics and science (some reservations on the ranking here. I don’t agree with them, mainly because the quality of an education system includes the cost efficiency.)  The reasons for this lack of competence are diverse.  The NEEDU report dedicates a lot of attention to post provisioning within the education system:

“HODs and principals…are promoted to positions…without necessarily exhibiting superior subject knowledge, pedagogical skills or management capacity.”  “A very large part of the problem is that there is pressure to appoint officials to promotion posts using considerations other than merit. Criteria for evaluating teacher performance do not include measures identified in the research literature as constituting effective teaching, such as time on task, effective use of textbooks and materials, good communication, motivation and giving positive feedback.”

South Africa spends 6,2% of its GDP on education, more than any other country on the continent.  Principals get monthly sums for every student in their school. The money is intended to improve the school and get resources for the learners.  However, the students had many questions with how funds were spent:

“During our stay there was a problem with the water supply. Both of our schools couldn’t pay the water bills and because of this, water was disconnected. Food could not be cooked, toilets could not be flushed … How is this possible?”

The NEEDU report highlights the high ratio of personnel vs non-personnel costs.  On average, 86% of funds are spent on personnel, reaching ratios of higher than 90% in some provinces, leaving little room for expenditures on infrastructure, books and other learning materials.   The problem is old and the NEEDU reports cites rising salary costs, excess teachers as a result of urban migration, pressure from organized interest groups, policy ambiguity and inadequate information management as culprits.

Despite a long list of challenges, the students thoroughly enjoyed their time at their respective schools.  One element they appreciated was the sense of camaraderie and involvement among staff:

“Every morning all school staff gathers in the staff room to sing a hymn together and pray together. We found that this habit created a good team feeling. Thereafter the principal makes some announcements, mostly about administrative and logistical issues such as due dates for handing in documents, but sometimes also about issues that directly relate to the quality of teaching and learning. Other staff members can also make announcements. It is actually a nice way of giving everyone a chance to share information.”

The principal once raised the issue of corporal punishment which was still used by many teachers in the school. Most classes in a township school have 50 or more learners. The teachers have limited skills for classroom management. Teachers seldom differentiate their approaches. One of the reason being that there are too many learners to adapt to, but it also shows a lack of teaching skills. Many learners have problems to concentrate, especially in the morning.

Corporal punishment in schools was prohibited by Law in 1996.  However, statistics from the General Household Surveys 2012 indicate that 2.2 million learners (15.8%) experienced some kind of corporal punishment in schools.  Our students encountered the practice as well, deeply unsettling them and confirming the sense of disempowerment that many teachers feel, seeing corporate punishment as the only way to discipline learners:

“Methods of punishment we saw were being hit by a wooden stick on the hands or with the back of a blackboard wiper on the fingers, standing up with hands in the air for the whole lesson, or kneel down on the floor while making exercises in their workbook. The worst thing about this is learners seem to be used to this, and don’t care that much. They even laugh when other students are being hit. When we tried to discuss this with the teachers, they tried to avoid the conversation in every possible way. Alternatively, they said that corporal punishment is the only intervention that helps to discipline learners. There was no real openness to alternatives to reinforcement and punishment.”

After spending months in a township school it is easy to despair.  After all, media are filled with tales of South Africa’s education crisis.  Nevertheless, not all is gloom.  Many more black and coloured children are getting at least some formal education.  Around three-quarters of those aged 4-6 and 98% of those aged 7-15 are in full-time schooling.  Heavy investment in system-wide assessment has jolted districts and provinces into action.  Recent ANA results for numeracy and literacy hint that learning outcomes might be slightly improving.

Overall, these observations confirm our focus on improving learning outcomes through strengthening systems for professional development such as Professional Learning Communities, enhancing instructional leadership and improving subject advisors’ maths content knowledge.