This is the second part of my review of Paul Collier’s “The future of capitalism”. The first part is here.
In this review of Collier’s policy recommendations, I will
break the discussion into three parts, following Collier’s own approach: how to
make companies more ethical, families stronger, and the world better.
Ethical firm. Collier argues that, in order for companies to be seen as
ethical and to offer their workforce meaningful jobs, companies should include workers
in management, give much more power to the middle-level management, and do profit-sharing.
These are all well-taken recommendations, and I believe, like Collier, that
they would increase companies’ profitability in addition to providing “better”
jobs. The question however is how many companies nowadays can afford to provide
such meaningful and (relatively) stable jobs because of fast-evolving changes
driven by globalization. Nevertheless the idea is correct.
Collier then moves to what may be the most intriguing recommendation
in the book and that goes beyond the usual “let’s have higher and more progressive
taxes”. He looks at the big divide between the successful global cities (like
New York and London) and their left-behind hinterlands. The success of metropolises
comes from economies of scale,
specialization, and complementarity (gains of agglomeration). People can
specialize because the demand for specialized skills is high (the best tax accountants
are located in New York not in small dilapidated cities). Companies can enjoy
economies of scale because the demand is high and specialized workers benefit from
complementarity in skills from other workers with whom they are in close geographical
and intellectual contact.
So who are the main winners from metropolises' success, asks
Collier? People who own land and housing (as housing prices skyrocket) and
highly skilled professionals who, after paying higher rents, still make more
in global cities than elsewhere. Collier’s
suggestion then, based on his work with Tony Venables, is to tax heavily these
two groups of people, i.e., to introduce supplemental taxes which would be geographical:
tax housing and high income individuals living in London.
How to help hinterland catch up? Use the money collected in London
or New York to give subsidies to large cluster-like companies (like Amazon) if
they set they businesses in the left-behind cities like Sheffield or Detroit. One
can quibble with this idea but the logic of the argument is, I think, quite
compelling, and the taxation suggested by Collier has the advantage of going beyond
the indiscriminate increase in taxes for all. We are talking here of targeted
taxation and targeted subsidies. This is the lieu fort of Collier’s book.
Ethical family. I am less enthusiastic about the suggestions in this area. Here
Collier is at his most conservative although that social conservatism is masked
under the cover of scientific studies that show that children living in “full” families
with two heterosexual parents are doing much better than children living with
one parent only.
Collier almost implies that (say) mothers should stay in unloving
or abusive relationships so that there would be both parents present in the family.
Such families should, according to Collier, be given support and for all children
public pre-K and K education should be free (very reasonable). Collier also
very persuasively describes manifold advantages that the children of the rich receive,
not only through inheritance but through intangible capital of parental knowledge
and connections. This type of social capital inheritance is not a well-researched
topic and I hope this changes since its importance in real life is substantial.
Collier displays clear preference for “standard” families and
even some “social eugenics” as when he criticizes UK policy that provides free
housing and since 1999 extra benefits for single mothers to have encouraged “many
women..to bear children who will not be raised well” (p. 160).
The argument that parents should sacrifice themselves (regardless
of the psychic cost) for children is also dangerous. It leads us to a family formation
of the 19th century when women often lived in terrible marriages because
of social pressure not to be seen as abandoning or not caring for their children.
This is neither a desirable nor a likely solution for today. An ethical family
should consider interests of all members equally, not subjugate the happiness
of some (mostly mothers) to that of others.
Ethical world. Collier has surprisingly little to say about the ethical
world. His ethical world is a world largely closed to new migration which
Collier rejects based on a not unreasonable view going back to Assar Lindbeck and
George Borjas of cultural incompatibility between the migrants and the natives.
Interestingly, Collier does not quote either of these two authors nor any
others. (The book is directed at the general audience so the mentions of other
authors are extremely rare except when it comes to Collier himself and a few of
his co-authors).
It is slightly disconcerting that Collier who has spent more than
three decades working on Africa has
almost nothing to say about how Africa and African migration fits into this “ethical
world”. There are only two ways in which he addresses migration.
First, migrants or refugees should stay in countries that are
geographically close to the source countries: Venezuelans in Colombia, Syrians in Lebanon and
Turkey, Afghanis in Pakistan. Why the burden of migrants should be exclusively borne by the
limitrophe countries that are often quite poor is never explained. Surely, an
ethical world would require much more from the rich.
Second, he argues that the West should help good companies
invest in poor countries in order to increase incomes there and reduce migration.
But how is this to be achieved is never explained. It is mentioned almost as an
afterthought and is considered deserving of two sentences only (in two different parts
of the book). This is in contrast with a detailed explanation, discussed above,
of how governments should encourage and subsidize large companies to relocate
to second-tier cities. Could a similar scheme be designed for investments in Africa?
Nothing is said.
Further, where does it leave African migrants crisscrossing the
Mediterranean as I write? There are no geographically close countries where
they could go (surely not to Libya) nor can they wait for years in Mali for the
Western companies to bring them jobs. Again,
nothing is said on that. It is not surprising that Collier is very supportive
of Emmanuel Macron whose anti-immigration policy is quite obvious, and of Danish
Social Democrats that are in the process of creating a kind of national social democracy
with new laws that practically reduce immigration to a trickle. Collier favors
Fortress Europe although he does not say so explicitly.
In keeping with his anti-immigration stance, Collier argues that
migration is not an integral part of globalization. Why –in principle- goods, services and one factor
of production (capital) should be allowed
to move freely while another factor of production (labor) is to remain stuck is
not clear. Surely, the fact that trade is driven by comparative advantage and
migration by absolute (p. 194) is not the reason to be against migration. On exactly
the same grounds, one could be against movement of capital too.
In conclusion, I think that the recommendations regarding the
“ethical firm” and metropolis-hinterland divergence are spot on; the
recommendations on “ethical family” are a combination of very perceptive and
sensible points, and a view of the family that at times comes from a different
age, and almost nothing is said about an “ethical world”. This latter is a big
omission in the era of globalization, but perhaps Collier was solely interested
in how to improve nation-states.
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