Tag Archives: political economy

White elephants and icons

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I just read a marvellous 1980 book, Great Planning Disasters by Peter Hall. The first half of the book consists of specific case studies. To qualify, the cases have to have been costly, involved processes of planning by public authorities, and have been perceived by many people to have gone wrong. Those included are London’s third airport saga (indeed), London’s ‘motorways’ (no, they don’t exist),  Concorde, San Francisco’s BART system, and the Sydney Opera House. Also included are two schemes that looked like they would be disasters but turned out not to be: California’s new university campuses and the British Library.

One of the interesting things about the book is having an additional 40 years of hindsight. The London airport saga continues, with Heathrow now having not just a 4th and indeed a 5th terminal but still not an additional runway. Stansted has become London’s 3rd airport, sort of, though we have the bijou London City as well. Concorde alas is no more: I remember still the exhilaration the crowd I was in felt at an open air concert in Kew Gardens felt when it flew overhead toward Heathrow, after the announcement the small fleet would be retired. The British Library has been a clear success. The Sydney Opera House had to have a major refurbishment. But as I ask my students when we discuss cost benefit analysis, do you think it should never have been built: is it an icon or a white elephant?

The second part of the book draws out the themes from the case studies, discussing it from the perspective of the actors and their incentives: affected communities, bureaucrats and politicians. One theme in all the case studies is that major projects take a long time to conceive, plan, approve and fund, and during that time political actors change, as does the zeitgeist. Individuals can have a big impact. One striking example is that an influential and forceful advocate of locating the new British Library next door to the British Museum (where he was chair of trustees) became an influential and forceful advocate of its actual site next to St Pancras when he was made chair of the new national libraries’ board. Technology changes too, costs rise – always – and demand forecasts over decades are almost sure to be wrong, albeit in an unknown direction.

There is no easy answer to the conundrum of how to avoid great disasters. The book recommends taking care with forecasting techniques, having regard to distributional consequences (and how this affects the politics), and communicating the uncertainties. I think the conclusion I draw, having been thinking about this, is that planning big projects is a political, not merely a (complicated) technical, decision. That makes two things important: building enough consensus, and aligning all the interventions that could make a project a self-fulfilling success. Oh, and multiplying the initial cost estimates many times over, except not too much to scare people from approving and investing in the first place.

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A brace of Leviathans

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As welcome distraction from the misery of not being able to see any close family at Christmas after all, I’ve read (late, I know) The Narrow Corridor: How Nations Struggle for Liberty by Daron Acemoglu and James Robinson.

The basic argument is well known. Inspired by Hobbes’ Leviathan, they argue that nations experience a dynamic whereby there is a sort of saddle path (a narrow corridor) between not enought government (‘absent Leviathan’) and too much (‘despotic Leviathan’). To stay in the corridor (‘shackled Leviathan’), there needs to be a balance of power between government (which has to be strong enough to be effective) and society (which has to be strong enough to prevent government tipping off the path in either direction. Slightly oddly, they call this the Red Queen effect after the on-the-spot race between Alice (in Wonderland) and the Red Queen – odd because it is never made completely explicit that they’re referring to a dynamic process rather than an adequate balance. I infer the former, but it’s implicit in the examples that make up the bulk of the book.

For there is a whistle stop tour of pretty much all of recorded human history. I’m not sure this works well, although at least the book is only a third of the length of Thomas Piketty’s Capital and Ideology, which came with its own tote bag. I have to confess I started to read the latter but was not distressed to find it quarantined in my office in the March lockdown. The first section of that is all history. It’s fantastic that top economists have discovered history of course, but it’s difficult to get the right focal length – what’s the right amount of detail to inform readers without it becoming classic economic imperialism? I did enjoy reading the book, but personally, I’d have edited down The Narrow Corridor’s capsule histories.

Other quibbles. The book seems to demonstrate the struggle for stability and absence of conflict at least as much as for liberty, despite the subtitle and blurb emphasising liberty only. Hobbes was more in the territory of order versus anarchy. There’s even a hand grenade on the paperback cover. And, having spent most of the book presenting the three Leviathans as exhausting the possibilities (there’s a neat diagram), the ‘paper Leviathan’ is introduced to deal with countries that govern despotically and at the same time incompetently – think some Latin American or African states. And perhaps some formerly-shackled Leviathan countries heading in that direction…..

Having said all this, well worth a read, as well as a useful reminder that there have been dark times before and yet things go on.

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Time and times

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I went into my office on Friday to pick up some books out of their quarantine, mainly things i need to get papers written, but I also rescued Changing Times: Economics, Policies and Resource Allocation in Britain Since 1951 by Martin Chick. I’ve torn through it, a very interesting book.

As the subtitle indicates, it’s a history of postwar economic policy in the UK, ranging over six decades and issues spanning industrial policy, macro and trade policies, environmental, labour market, health and education policies. It’s also only 400 pages, to give an indication of the quite long focal length it necessarily requires. Given this broad span, the structure of the book is provided by the theme of time. Time in two senses: how policies relate to the distribution of economic welfare between generations; and the importance of assets, stocks as well as flows, and in particular the state’s withdrawal from investment in the future over this period.

This doesn’t 100% work as a thematic structure but it is nevertheless extremely interesting to reflect on some familiar trends and episodes in postwar economic history through this lens. Chick also draws on a huge range of the economics literature in order to cover the various policy areas, and has obviously spent hours in the National Archives reading Treasury papers and other policy documents. (Indeed, by the <6 degrees of separation rule, he lodged with my in-laws while staying at Kew to do the archive work.)

My favourite chapter was the one on privatisation of state-owned industries, which politely eviscerates the rationale for the policy. As Chick writes: “What was perhaps under-appreciated at the time of privatisation was the historical novelty of trying to induce large sunk investment from utilities operating in competitive markets.” After all, profit rates in the utilities sector are never spectacular. He goes on to interpret nationalisation as being “preferred to regulation as a means of extracting for consumers the benefits of improvements in productivity.” Privatisation was introducing risk into areas “from which it had been absent for decades”, the risk of costly, lumpy investments not delivering an adequate return, and technological risk – as well as altering the distribution of returns.

However, there is loads of interest in every chapter even for someone who has read a lot of the economic and political history of this period. For instance, the London smog of 5-8th December 1952 is thought to have led to the deaths of 4000 Londoners, a staggering number. Yet it wasn’t until 7 months later that the government even appointed the Beaver Committee on Air Pollution. The same chapter on environmental policy is super-interesting on the relationship between stocks and flows of different types of natural asset – fish vs oil.

Chick concludes the book: “Considerations of time and space affect all of the major issues of concern today (housing, utility output, global warming, infrastructure, educational opportunities, access to healthcare, trade, the internet and so on).” I have quibbles about the book – for instance, it would have been nice to replace dense paragraphs describing data and trends with some charts. But in the end, what’s not to like about a book with references ranging from Derek Parfit and Frank Ramsey to articles about the Cod Wars of the 1970s or technical reports on council house sales?

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Angry Man

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Angrynomics by Eric Lonergan and Mark Blyth is a rip-roaring read, and I wish I’d been in the pub with them as they discussed the state of the world and how to set it to rights. Not that I wholly agree with them, although disagreeing would obviously be half the fun. Normally I hate dialogue formats, as they’re usually constructed as a kind of semi-polite Punch and Judy show, presenting polarised views that are never intended to be reconciled. Lonergan and Blyth – it even sounds like a Victorian music hall act – agree on the basics so they riff of each other here in a more positive way.

Their basic thesis is that there are two kinds of anger abroad in the world: moral outrage (good) and tribal anger (bad), both reactions to the way the global economy has affected people since 1989.

Increased inequality is part of the story, genuine economic grievance in the rust belt and its equivalents, and another part is the cynical exploitation of tribalism or identitarianism by some politicians. So Lonergan and Blyth wear their left-of-centre hearts on their sleeves. The dialogues then describe and discuss the economic aspects of the political changes amply described in the now-extensive ‘decline of democracy’ literature – the micro, the macro/monetary, inequality (including, importantly, intergenerational), technological change – concluding with what to do now.

One huge gap evident right at the start is a passing parenthesis that the expression of anger is a largely male phenomenon. The book never picks this up; there is surely an important gender aspect to the way work has changed.

I disagree with dating the anger phenomenon to the collapse of communism in 1989, which removed a coherent (albeit flawed) ideology to oppose neoliberalism. Surely the hinge was the crisis of the 1970s, Thatcher and Reagan, and the early 1980s recession. That was the start of de-industrialisation, and the scarring of people’s economic prospects for the rest of their lives, and their children’s. These sea changes take time and there is never a single moment. As the book notes, too little has been reformed since 2008/9, but my view is that looking back with the hindsight of 2030, the combination of the Financial Crisis and the Covid depression will prove to be another hinge. (The book pre-dates the pandemic.)

As for the proposals, I think they get the role of competition all wrong, blaming excessive competition in tech and telecoms – whaaaaat??? – for the race to the bottom in employment practices. Amazon reports low profits because it reinvests so much revenue in continuing world domination, not because it has scrappy margins due to competitors snapping at its heels. I understand little about current monetary and alternative proposals, but as a diehard microeconomist find it hard to understand how administered negative prices in a market dominated by the state (ie central bank) can function well. Regulate the financial sector firmly – a big yes. The book has an interesting idea about government auctions of collective data rights – like spectrum auctions – which answers my profound objection to the proposal ‘create property rights in personal data and sell them’, namely that the value in data is collective, is due to aggregation.

Anyway, my copy has a combination of big ticks and scrawls of ‘nonsense!’ in the margins. A very satisfying read.

 

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Enlightened liberalism: a reckoning

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I’ve torn myself away from Twitter, horrified by the disintegration of the United States, the end point of its years of institutional racism and grotesque inequality, fuelled by Trump. George Packer’s brilliant article in The Atlantic a few weeks ago captured it: “We are Living in a Failed State.”

How did this come about? Well, The Light that Failed: A Reckoning by Ivan Krastev and Stephen Holmes seems like a pretty good diagnosis of how modern democratic liberalism has come to an end since 1989. The book starts with Eastern Europe, and moves on to Russia, China and finally the US. It uses the device of imitation: the post-Communist countries of eastern and central Europe wanted to be like the West in its idealised, peak-End of History image. They wanted to modernise, ‘normalise’, and become just like the countries of the EU. Yet the 1989 revolutions imitating liberalism have ended up in illiberal counter-revolutions, for there was a chasm between the ideal and the reality. “If we examine the gap between Western expectations and Eastern realities after Communism, we can discover an important source of the mental stress created in Central and Eastern Europe by a revolution aimed at importing ot imitating a foreign version of normailty.” I take this to allude to the importation of western economic and political institutions without consideration of local history and realities. Much has been written about the naive and ultimately counterproductive economic ‘shock therapies’ of the early 1990s.

Moving on to Russia, the authors argue that Putin’s imitation of the west has taken an aggressive, sarcastic turn – “ironic mimicry and reverse engineering of American hypocrisy.” His aim in interfering in elections and setting bots and trolls to run amok on social media is to dishearten and confuse, sow discord. “The West has started to resemble Putin’s Russia more than we are ready to acknowledge,” they write.

As for Trump, they argue that the irreversible damage he has caused to American democracy has involved deploying a populist gambit, corroding trust “not by lying but by telling truths selectively, especially half truths with which liberals are inclined to agree – globalization has only served the financial elite, US troops should not be entangled in Syria or Afghanistan, ‘the system’ is unfair. “The Trump movement fits into a global culture of grievance and victimhood,” the same culture exploited by Orban in Hungary, or indeed the authoritarian populists of western Europe such as Le Pen or Farage.

This an essential and sobering read. This is far from my expertise, but it seems to me to capture something essential about the political psychology about the past 30 years. The book ends by presenting today’s situation as a fork in the road: tragedy or hope. Is there hope for a chastened liberalism? It’s certainly worth working for it, and in a different frame of mind one can certainly see this book as a polemic that ignores countervailing forces. But today’s images and headlines, in the context of a global health emergency and economic catastrophe, make it hard to feel optimistic.

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