Sunday, September 25, 2016

Reframing the world

I listened this morning to a brilliant talk by Danny Quah on what changes in the world during the past twenty years or so portend for the intellectual leadership of the world, or to be more specific, how the political and economic life should optimally be organized given the global changes in economic power that we are witnessing. In the beginning of his speech Danny defines the two tenets of the Western (or as he puts it, American) framing of an optimal society: economic freedom and democracy. This is the well-known paradigm of liberal capitalist democracy that, according to Fukuyama and later Acemoglu and Robinson, represents the end point of human evolution. Danny links it, rightly in my view, in addition to “American exceptionalism”, that is to the belief that America, by its own example, shows to the world how it should be organized, and that ultimately, the way the world will end up by being organized will be as a form of a “Greater America”.

But then Danny  says, something has gone wrong with this approach. First, the economic and military dominance of the Western world is not nearly as overwhelming as it was one hundred years ago, or even fifty years ago. That dominance is being eroded by the growth of other parts of the world organized according to different principles, and obviously so by China. So if the performance of the liberal capitalist model is inferior to another model, then perhaps democratic liberal capitalism is not the best way to organize the mankind everywhere? Second, in responding  to the challenges of globalization and the hollowing out of the domestic middle classes, a significant  part of the Western public opinion shifts to populism, nationalism etc. all the forces that a successful liberal capitalist model should make sure remain marginal. But they are no longer so. Third, Danny raises the issue: should not our thinking about what is the best way to organize economic and political life be influenced not only by who is doing it most successfully but also by where the majority of the world population lives? It is not simply an arithmetical point. It comes from requiring that the modes of (successful) life that many people experience do have a greater empirical validity than the ways of life experienced by smaller groups of people.

All of this points, even if Danny does not say it  so in his speech, to the Chinese experience as a “reframer” of the optimal organization of society. To redefine what best society is, is indeed a huge intellectual undertaking because if an entirely different paradigm of how to organize society becomes dominant, the paradigm built in the West over the past 300 years would be shunted aside and our view of what is a “good society” will undergo a revolution. We are talking here of nothing less than a major intellectual revolution, say similar to the move from paganism to Christianity in the West.

Danny however does not define this new framework. It could be that this is left for another speech or a book. But I do see some problems with the definition of a new framework. Let us take it as self-evident that the Chinese experience of the past half-century has been the most dramatic example of betterment of mankind ever. We should be able, in principle, to learn something from it: on how to organize other societies to replicate the Chinese miracle. But there are problems. Unlike  the Western success, following upon the Industrial Revolution, that was built through a combination of abstract thinking (about free will, property, freedom, role of religion etc.) and practical, if imperfect, application of these principles, the Chinese experience is entirely composed (or so it seems to me) of pragmatic moves without an overall intellectual blueprint. Such pragmatic experiences are difficult to transplant precisely because their success depends on local conditions and on finding the best solutions to very local problems. This extraordinarily success in solving local problems  lacks a general “mode of solving the problems” that could be exported elsewhere. This has been a problem that China has had in influencing the economic organization of the rest of the world for a while: inability to formulate general (abstract) principles that should guide other societies too.

In the political arena, the problem is perhaps even graver. There, in the Chinese model, the good political system means that a well-educated, knowledgeable and non-corrupt elite, selected in a reasonable equitable manner, should make important political decisions. (I am intentionally not saying “rule”.)  Again, while that  approach, applied in Singapore and China, had proven successful, it is difficult to see how it could be transplanted elsewhere. Even the most extractive and self-interested elite will claim to be knowledgeable and non-corrupt. The advantage of the Western democratic model is precisely its focus, not on the ultimate result (“good governance”) but on the process—essentially as in Schumpeter’s definition of democracy “as a system where political parties fight for who will get more votes”. That system does not guarantee a good government, or a “clean” government, does not protect against nationalism, populism or nationalization of property. But it places its faith in the common sense or ability of people to learn from their mistakes, so that ultimately they will tend to choose good and reasonably competent governments to lead them.   

Now, despite these problems of defining an alternative framework, Danny has in my view opened an extremely important issue which will be will us in the foreseeable future.  If the most successful part of mankind is organized according to principles A, and our historical and cultural experience tells us that the best way to organize society is B, how long can this tension persist? Either we shall have to derive some general principles from A and apply them worldwide, or the societies currently applying A may move to taking over B themselves, or B might again become dominant. The one thing that cannot last forever is that we keep on believing that B is the best way to run societies while empirically the most successful societies are run according to A. Theory and practice will have to came closer.  At some point.

Saturday, September 17, 2016

The downside of upward mobility

In the Financial Times a few days ago, Janan Ganesh wrote an excellent piece on Theresa May’s attempts to make British system more meritocratic, or differently put, to increase upward mobility. But Ganesh writes, if you are really serious about upward mobility in an era of  low growth, then the upward mobility that the “bien pensant” upper middle classes like to champion, implies some downward mobility for the progenies of those same upper middle classes. But not only are they unwilling to contemplate this but they do everything to make sure the chances of those from the bottom overtaking the sons and daughters of the rich remain negligible. I have to quote here Ganesh’s full paragraph:

“The room [at the top] rarely opens up because those mediocrities [mediocre sons and daughters of the top class] are too well screened by parents who hire private tutors, buy cultural enrichment, teach etiquette, set expectations, stand as personal examples of success, coach interviewing techniques, navigate any bureaucratic maze put before them, set up home in nice areas, arrange internships via friends and, just to rub in their supremacy, make direct gifts of cash and assets. To fail under these conditions is a kind of achievement in itself”.
If we were not hypocritical and really wanted to support upward mobility or give equal chances to all there are many political measures we could enact. By listing them, and I am here adding a few from within the US context, Ganesh shows how totally politically unfeasible they are: confiscatory inheritance taxes, smaller class sizes in poorer neighborhood funded from the taxes from the rich, end of tax-exempt status for the richest universities, moral suasion that rich universities annually transfer 1% of their wealth to poorer state schools, criminalization of nepotism etc. None of these proposals will have the remotest chance of being accepted by those who currently wield political and economic power. Hence, hypocrisy.

Ganesh’s article prompted me to write about what I thought for a while was  a somewhat facile support of equal opportunities. (I wrote about it a bit before; here).  It is today treated by some as a panacea and by others as “motherhood and apple pie”, something that must be believed in, even unreflectively. It has joined the Pantheon of democracy, transparency, accountability and similar things we preach, do not observe, and never dare to question.  

If upward mobility is about the relative positions in a society, then upward mobility for some implies downward mobility for the others. But if those currently at the top have a stronghold on the top places in society, there will no upward mobility however much we clamor for it. This positional (or relative) approach to mobility is a fairly accurate description of reality in societies that are growing slowly. In societies that develop quickly even if a lot of mobility is about positional advantages (and they are by definition fixed) it can be compensated by creating enough new social layers, new jobs and by making people richer. Thus the upwardly mobile have some room to move up which does not require an equal number of people to move down.

In more stagnant societies, mobility becomes a zero-sum game. To effect real social mobility in such societies, you need revolutions that, while equalizing chances or rather improving dramatically the chances of those on the bottom, do so at the cost of those on the top. In addition, they destroy many other things including lives, not only of those on the top but also of those on the bottom. (In that way, somewhat ironically, the near equality in death does the job of equalizing life chances). The French Revolution, until Napoleon to some extent reimposed the old state of affairs, was precisely such an upheaval: it oppressed the upper classes (clergy and nobility) and promoted the poorer classes. The Russian revolution did the same thing; it introduced an explicit reverse discrimination against the sons and daughters of former capitalists, and even of the intellectuals, in the access to education.  

There is also an age element to such revolutions which fundamentally alter societies and lift those from below to the top. The young people benefit. In a beautiful short novel entitled “The élan of our youth” Alexander Zinoviev, a Russian logician and later dissident, describes the Stalinist purges from a young man’s perspective. The purges of all 40- or 50-year old “Trotskyites” and “wreckers” opened suddenly incredible vistas of upward mobility for those who were 20- or 25-year old.  They could hope, at best, to come to the positions of authority in ten or fifteen years; now, that were suddenly thrown in charge of hundreds of workers, became chief designers of airplanes, top engineers of the metro. What was purge and Gulag for some, was upward mobility for others. Or consider the age of Hitler and his closest associates when they came to power. Hitler was by far the oldest: at 43 years of age (Goebbels 35; Himmler 32). I would not be surprised that something similar is today afoot in many Middle Eastern societies  where a huge inflow of the young in search of better positions has been met by the wall of stagnant economies and immovable top. ISIS provides a solution to that: you cannot become a head of a corporation, or a deputy minister, but you can lead a battalion of 100 suicide-warriors.

There are other disconcerting things about upward mobility.  The Ottomans promoted it by creating a corps of Janissaries, children born in Christian families that were  abducted at a young age, and then through military drill molded into a most formidable elite Army corps. Many of them went to rule at the highest positions, including the vizier or the prime minister. This is a beautiful example of both upward mobility and ethnic non-discrimination.  But at the origin of that great example was a crime of abduction of children from their parents.

It is then not surprising that, short of such massive upheavals that shake  the societies to their very core, countries tend to display relatively little positional mobility. The two recent studies, of Sweden and Tuscany, found this by examining the names of most eminent families over several centuries and came to the conclusion that they have little changed.

I think that we are led to a very somber conclusion here. In societies with slow growth, upward mobility is limited by the lack of opportunities and the solid grip that those who are on the top keep over the chances of their children to remain on the top. It is either self-delusion or hypocrisy to believe that societies with such unevenness of chances will come close to resembling “meritocracies”. But it is also the case that true upward mobility comes with an enormous price tag of lives lost and wealth destroyed.   

Monday, September 12, 2016

Robotics or fascination with anthropomorphism

Recent discussions about the “advent of robots” have some rather unusual features. The threat of robots replacing humans is seen as something truly novel possibly changing our civilization and way of life. But in reality this is nothing new. Introduction of machinery to replace repetitive (or even more creative) labor has been applied on a significant scale since  the beginning of the Industrial Revolution. Robots are not different from any other machine.

The obsession with, or fear of, robots has to do, I believe, with our fascination with their anthropomorphism. Some people speak of great profits reaped by “owners of robots”, as if these owners of robots were slaveholders. But there are no owners of robots: there are only companies that invest and implement these technological innovations and indeed they will reap the benefits. It could happen that the distribution of net product will shift even more toward capital, but again this is not different from the introduction of new machines that substitute labor—a thing which has been with us for at least two centuries.

Robotics leads us to face squarely three fallacies.

The first is the fallacy of the lump of labor doctrine that holds that the new machines  will displace huge numbers of workers and people will remain jobless forever. Yes, the shorter our time-horizon, the more that proposition seems reasonable. Because in the short term the number of jobs is limited and if more jobs are done by machines fewer jobs will be left for people. But as soon as we extend our gaze toward longer-time horizons, the number of job becomes variable. We cannot pinpoint what they would be (because we do not know what new technologies will bring) but this is where the experience of two centuries of technological progress becomes useful.  We know that similar fears have always existed and were never justified. New technologies ended up creating enough new jobs, and actually more and better jobs than were lost. This does not mean that there would no losers. There will be workers replaced by the new machines (called “robots”) or people whose wages will be reduced. But however these losses may be sad and tragic for individuals involved they do not change the entire society.

The second “lump” fallacy which is linked with the first, namely our inability to pinpoint what new technology will bring, is that human needs are limited. The two are related in the following way: we imagine (again, looking only at any given moment in time) that human needs are limited to what we know exists today, what people aspire to today, and cannot see what new needs will arise with a new technology. Consequently we cannot imagine what will be the new jobs to satisfy the newly created needs. Again history comes to the rescue. Only ten years ago we could not imagine the need for an intelligent cell phone  (because we could not imagine it could exist) and thus we could not imagine the new jobs created by the iPhone (from Uber to ticket sales). Only 40 years ago, we could not imagine the need to have our own computer in every room and we could not imagine millions of new jobs created by the PC.  Some 100+ years ago we could not imagine the need for a personal motor car and thus we could not imagine Detroit and Ford and GM and Toyota and even things like Michelin restaurant guide.

Even best among the economists, like Ricardo and Keynes (in “The economic prospects of our grandchildren”) thought that human needs are limited. We should know better today: the needs are unlimited and because we cannot forecast the exact movements in technology, we cannot forecast what particular form such new needs will take. But we know that our needs are not finite.

The third “lump” fallacy (which is not directly related to the issue of robotics) is the lump of raw materials and energy fallacy, the so called “carriage capacity of the Earth”. There are of course geological limits to raw materials simply because the Earth is a limited system. But our experience teaches us that these limits are much wider than we generally think at any point in time because our knowledge of what earth contains is itself limited by our level of technology. The better our technology, the more reserves of everything we discover. Yet accepting that X is an exhaustible energy source or a raw material and that at the current rate of utilization it will run out in Y years is only a part of the story. It neglects the fact that with the rising scarcity and price of X, there will be greater incentive to create substitutes (as inventions of sugar beet, synthetic rubber or fracking show) or to use a different combination of inputs to produce the final goods that now use X.  Indeed, the cost of the final good may go up  but here again we are talking about a change in some relative prices, not about the a  cataclysmic event. Earth carriage capacity which does not include development of technology and pricing in its equation is just another “lump” fallacy.

Some famous economists like Jevons who collected tons of paper in the expectation that the trees would run out entertained the same illogical fears. Not only did it turn out that, with many thousand (or million?) times greater use of paper, the world did not run out of trees—Jevons simply, and understandably, could not imagine that technology would enable recycling of paper and that electronic communications would substitute for much of what paper was used for. We are not smarter than Jevons because we too cannot imagine what might replace fuel oil or magnesium or iron ore, but we should be able to understand the process whereby these substitutions come about and to reason by analogy.

Fears of robotics and technology respond, I think, to two human frailties. One is cognitive: we do not know what the future technological change will be and thus cannot tell what our future needs will be.  The second is psychological: our desire  to get a thrill from the fear of the unknown, from that scary and yet alluring prospect of metallic robots replacing workers in factory halls. It responds to the same need that makes us go and watch scary movies. When we do not go to a movie theater we like to scare ourselves with the exhaustion of natural resources, limits to growth and replacement of people by robots. It may be a fun thing to do but history teaches us that this is not something  we should rationally fear.