Economic Modelling is a Driver for Economic Inequality in Denmark

This post is the first of a series in which PhD fellows at DBP present their research with a view to current political and economic issues.

By Niels Fuglsang, PhD fellow, DBP

When the Danish government in August 2017 proposed a tax reform that will reduce taxes on income, cars, telephones etc. for 23 billion Danish kroner (3,09 billion Euros) towards 2025, the minister of taxation was confronted with a question from a journalist about whether the reform would increase the economic inequality in Denmark.
The minister said: “This is a reform that increases the inequality, but we do that with open eyes… We have to increase inequality a little bit in order to create growth”. The minister backed his argument with calculations from economic models showing that the tax reform would increase the Danish GDP by 6,5 billion Danish kroner (873 million Euros) as people in jobs would work more while people without jobs would do more to get a job because of the economic incentives.
The reform is one in a series of reforms during the last decades which aim at increasing the income gap between those who have a job and those who don’t by either cutting income taxes or reducing social insurances and social benefits. In the period from 1993-2016 the high income tax level has thus been reduced by 12 percent (to about 56 percent) while the low income tax level has been reduced by 10 percent (to about 40 percent). Since 2008 the number of Danes who are eligible to pay high income tax has furthermore been reduced from one million people to half a million people. And since 1993 unemployment insurance has been reduced from eight and a half to two years. The reforms have all been backed by the economic models predicting that the economic incentives will result in more growth and higher employment.
Economic modelling has proven a powerful tool for driving this strategy. This has to do with the two-sided nature of economic models. On the one side they have a deeply political substance. On the other side they have an apolitical appearance.
Economic models are political because they never contain the whole world, but only part of it. The Danish economic models for example have since the 1990s included relationships showing how economic incentives increase the structural employment and growth. The methods for calculating this have become still more sophisticated with time. On the other hand, explicit concepts of inequality do not play any role in the models according to which Denmark could increase economic inequality to Brazilian levels without any economic consequences. Prominent economists like Joseph Stiglitz and organizations like IMF or OECD however argue that inequality can have negative consequences for the economy because it increases social problems and hinders socially marginalized people from contributing to society. It therefore matters which part of the world is included in the model and which part is excluded. It gives a political direction to the model and influences which economic reforms will be given high and low grades.
Economic models appear apolitical because they are too complex for most policy makers and journalists to understand. They see the models as a black box that you can feed with input (a political policy proposal) and which then provides an output (an economic evaluation of the proposal). What happens inside the mathematical equations is most often taken for granted and not questioned. Political negotiations rarely concern the assumptions of the model but rather start on the basis of the analysis produced via the economic model. In this way the ideas in the model are separated from the political process and constitute the commonly agreed truth about the economy on the basis of which the parties will negotiate. When occasionally the Ministry of Finance is confronted with critique, they respond by depoliticizing the models stating that these are “based on facts”, that they use the “conventional economic principles” as this is the most “responsible” policy, and warn against “letting political ideology control the economic models”.
When the Danish models were first put into use in the 1970s they were clearly inspired by Keynesian economics in their understanding that aggregate demand drove production and employment. Neoclassical economic theory however made its way into the models in the later part of the 1980s, and the models today constitute a Keynesian-neoclassical synthesis. From the 1980’s the models included an understanding of a general equilibrium which was determined by the supply side of the economy. The models thus predicted that if the supply of labor was increased this would with time turn into employment. In the 1990s and especially in the 2000s relationships on incentives were added, claiming that lower unemployment insurance and lower income taxes increase the supply of labor and thus in the long run support employment and growth. During the last decade the models have been adjusted so that, in the black box, the supply of labor turns into employment faster than before. Reforms of tax levels as well as social insurance will thus work faster than they did in the earlier versions of the models.
As neoclassical theory has taken a still more prominent role in the models, it becomes increasingly easy for political parties who propose reforms with tax cuts to get good evaluations from the economic models. At the same time it has become more difficult for political parties who want to spend more public money on education or social programs to get good evaluations, as it is usually necessary to raise taxes in order to pay for this policy. In the 1990s the leader of the right wing opposition Anders Fogh Rasmussen (prime minister 2001-2009) publicly criticized the models because they did not sufficiently take into account the value of “deregulating the markets and increasing the incentives to work” and thus were not in line with “common sense”. Today the left side of the Danish parliament criticizes the models for being “neoliberal” and favoring tax cuts over social and environmental investments.
The problem for democracy is that while the models show a political rather than an objective truth, politicians are often left without influence on what should be taken into account in the equations of the models. These decisions are depoliticized and left to a narrow circle of “neutral” economic experts. The history of the use of economic models in Denmark however shows that if political parties want to set a powerful agenda for the economic policy whether that is tax cuts, social investments, sustainable development or something else, they have to develop models that take into account the value of the policies they propose. Otherwise they are fighting an uphill battle against a black box which will categorize them as irresponsible and derail their agenda.

In my PhD project that I am currently undertaking at the Department of Business and Politics, CBS, I examine the political nature of economic models. Which ideas drive them and how do they influence politics and policy? In the coming years I will try to open up the black box and hopefully shed some light at its political substance.

Trump and the Global Interregnum

By Morten Ougaard, dr.scient.pol.
Professor at Department of Business and Politics
Copenhagen Business School

Antonio Gramsci wrote in his Prison Notebooks : “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.” It is understandable that observers as diverse as Roger Cohen (New York Times 18.11.2013) and Wolfgang Streeck (New Left Review 104, 2017) found reasons to apply this diagnosis to the current international situation.

Although this diagnosis not only relates to the US, many would consider the Trump presidency rich in such morbid symptoms. While we still wait to see whether Trump will turn into a more normal president, although with disagreeable policies, or be removed from office, or continue his erratic and inconsistent ways, it is instructive to look at one of his major signal campaign promises, the promise of huge investments in infrastructure that will give the US the most beautiful and best infrastructures in the world.

In his ‘infrastructure week’ (May 15 -19, 2017) Trump announced his plans for making good on this promise. Rather broad and unspecific plans, that is, except for the idea to privatize air traffic control and shorten the time it takes to get permits for infrastructure projects. The really big item is a 1 trillion dollars investment in infrastructure, to be done by stimulating private investments through government subsidies and tax credits to the tune of 200 billion USD. It is, in other words, about using state funds to leverage private investments.

To the surprise of several observers, the Trump administration had taken advice from the World Bank for developing these ideas (Financial Times, May 29, 2017). Indeed, with all the bad things international institutions and agreements have done to the US according to Trump, why should he seek help from an organization that for decades has spent US dollars helping other countries?

But actually it is not as surprising as it sounds, because what Trump’s initiative is addressing is the American part of a much larger global problem. Deficient infrastructure has been seen as a serious global problem, threatening economic growth, by the World Bank, the OECD and other major international institutions at least since the late 1990s, and from 2010 the G20 has embarked on a major initiative to address it. (I have analyzed this initiative in the article The Transnational State and the Infrastructure Push, forthcoming in New Political Economy. An earlier version is available as Working Paper in Business and Politics no. 93, Department of Business and Politics, at http://openarchive.cbs.dk/handle/10398/9504). According to a ‘consensus estimate’, based on analyses from the OECD, the World Bank, private consultancies and others, the world economy needs 15 to 20 trillion dollars of additional investment until 2030, if what is considered an acceptable level of global growth is to be achieved. This amounts to 1 to 1.3 trillion per year.

The challenge for Trump is in many ways similar to the challenge faced by global policy makers. In the words of a report from The High Level Panel on Infrastructure, an expert group commissioned by the G20 and headed by a financial sector executive, ‘the constraint is less one of funding than an insufficient pipeline of bankable projects’. In other words, there is a lack of infrastructure projects that are sufficiently attractive – i.e. profitable – for private investors to engage with them. Infrastructure projects are complex, saddled with uncertainties, are often very long term and require patient money. Private capital, in search of faster and higher returns on investments, shies away from such projects. And public funds, for instance from nation states or the World Bank and other development organizations have so far been insufficient. Hence the effort pursued by the World Bank, the OECD and the G20 to leverage public funds with private money through public-private partnerships or similar instruments.

But this has proven difficult, or rather it has turned out to require more state support than policymakers have been willing or able to provide. And this is precisely Trump’s situation. In a political and ideological climate that is deeply marked by neoliberal thinking and fiscal conservatism it is difficult to accept that markets alone cannot solve all problems, and the idea of increasing taxes to finance necessary investments is considered beyond the pale.

Thus critical observers – and there was quite a few – had reasons to be underwhelmed by Trump’s initiative. Promising 200 billion dollars as public seed money (without specifying where in the budget they should come from) in the expectation that this could mobilize another 800 billion in private money did not look like a convincing proposition – aside from the fact that the model requires commodification of the infrastructures in question, i.e. ‘toll roads everywhere’ as one critic put it, and easily can mean ‘socialization of costs and risks and privatization of benefits’ as critics point out.

Furthermore, in the current global interregnum deficient infrastructure is only one element, albeit an important one, in a larger problem of changing the path of economic globalization. In 2009 the G20 countries agreed on a ‘Framework for strong, sustainable and balanced growth’. In 2010 they added the ‘Seoul Consensus on Shared Growth’ that emphasized the shared interest between advanced, emerging and developing economies in global growth. In 2011 they added ‘inclusive growth’ to the ambition and from 2013 they have with increased urgency pointed to growing economic inequality as an important problem, explaining in 2015 that growing inequality is a threat to social cohesion and popular wellbeing, and a potential constraint on economic growth. In 2016 it was further underscored, supported by analytical work in leading international organizations, that a broader distribution of the fruits of economic growth is necessary.

In other words, global elite institutions have concluded that a change of course for the world economy is required. The world now needs a growth pattern that is more environmentally sustainable and more inclusive, both between and within countries. But so far they seem to have been unable to agree on the policy instruments required to achieve this, and/or to effectively implement the policies they have agreed upon.

Trump’s agenda, or rather his campaign promises of making America Great again, to better serve ‘hard working Americans’, is a populist answer to the challenge of ‘inclusive growth’. But the remedies suggested seem grossly inadequate, not to say counterproductive: tax reductions for the wealthy, severe cuts on health insurance and other social programs, deregulation of the financial sector, opting out of the Paris agreement and partially dismantling the Environmental Protection Agency, and promising to embark unilaterally on trade restrictions. Not exactly a recipe for a concerted international effort to change course towards sustainability and inclusiveness.

In short, the old global growth model, known from decades of neoliberal globalization, is no longer a viable solution. But for political and ideological reasons, a new model that meets the new requirements has great difficulties in being born. The Trump presidency is but one of the morbid symptoms of this interregnum, but a major one given the role and position of the US in the world.

‘Power’ in the Global Political Economy – a Global Value Chains Perspective

By
Mark Dallas
Stefano Ponte
Timothy Sturgeon

One of the most important changes in the global economy since the 1980s and 1990s has been the capacity for firms to slice up their production processes into fine-grained production ‘tasks’ and to distribute these tasks to areas of the world where local resources can be tapped most advantageously – cheap labor, knowledge, skills and more. While this was traditionally accomplished by setting up a subsidiary through foreign direct investment (FDI), international outsourcing to foreign firms (non-equity suppliers) has become an increasingly common method to tap foreign resources, partly because the transaction entails fewer risks (e.g. investment and employment risks) and allows the home firm to focus internal resources on their core competencies, while relying on specialized suppliers for various goods and services. Thus, firms have increasingly de-verticalized and internationalized, which has spread industrialization (including services) to other countries in the world – however unevenly.

Global Value Chains (GVCs) is an important framework for understanding this phenomenon, and one which is increasingly being used by various international organizations, such as those geared towards development in non-advanced countries. Part of the goal of GVC analysis is simply to ‘map’ as many of the production processes and their global geographic locations starting from a product’s raw materials through to the final assembly and then distribution, retailing and even recycling. Services obviously differ from physical goods value chains, but the logic is the same.

Beyond this simple descriptive exercise, GVC research also examines the relationships and transactions between firms (inter-firm governance). Frequently, there is an identifiable ‘lead’ firm which takes ultimate responsibility for a product, such as through its design and engineering and/or its brand and sales. Then, there are any number of supplier firms which might add value to the physical product or through provision of necessary services. While inter-firm transactions between lead firms and suppliers are voluntary and presumably for mutual benefit, the relationships are also infused with power, such that firms struggle over the distribution of value, for instance in the setting of prices between buyers and suppliers. Of course, inter-firm relationships also involve many other issues, such as setting product and process specifications, determining the production activities that suppliers will provide, ensuring their timely delivery and monitoring and inspecting them, among many others. Thus, governance and power are central aspects of GVCs.

More recently, GVC research has turned to the influence of the broader environment on the governance of GVCs, including the role of non-firm actors (like labor unions and NGOs), the local or national government apparatus and legislative process, the creation of industry standards, or other larger social phenomena (such as social movements). While this research extends the GVC framework well beyond inter-firm governance, the focus often remains on the impact these phenomena have at the firm level. One example of this is the establishment of labor standards in overseas factories in developing countries through voluntary governance rather than relying on local labor laws, which can be weak or weakly enforced. It is sometimes possible, through organizing, pressure, and home country legislation, to impose labor standards on offshore factories and suppliers, where monitoring is carried out by NGOs.

The proliferation of actors in GVC analysis and the extension of the framework into new areas have led to problems of theoretical coherence. In our recent paper, we attempt to improve this situation by unpacking the core concept of ‘power’ in GVCs. Most centrally, we identify four types of power that are expressed along two dimensions: the ‘transmission mechanism’ and the ‘arena of actors.’ In the transmission dimension, power is conceptualized along a continuum from more direct to more diffuse. ‘Direct’ transmission refers to situations in which actors can easily identify each other and the exertion of power is intentional. In these situations, actors have clearly-defined goals, power inheres within particular actors (i.e. they ‘possess’ resources that can be used to influence others), and the exercise of power is explicit and precise – such as in contract-like relationships in which measurement, monitoring and enforcement are more clearly specified. ‘Diffuse’ transmission refers to the opposite situation, in which actors may not be fully aware of the full set of actors with whom they are engaged, non-intentional behavior and outcomes are more common, the locus of power is not necessarily ‘possessed’ by particular actors (but rather exists through group behavior or indirectly between actors), and the exercise of power is less explicit.

The other dimension – the arena of actors – is simpler to understand. It consists of actor ‘dyads,’ such as in interactions between a lead firm and a supplier, or of ‘collectives’, where power is manifested through the behaviors of multiple players acting simultaneously (intentionally or not) and/or through more institutionalized collectives such as business associations, multi-stakeholder initiatives, or states.

Together, the two dimensions create four types of power:

‘Bargaining’ power (direct-dyadic) describes the power imbued in bargaining between lead firms and suppliers.

‘Demonstrative’ power (diffuse-dyadic) describes situations where one organization’s behavior (firm, NGO, international organization) has an intended influence on another organization’s behavior, creating demonstration effects.

‘Institutional’ power (direct-collective) describes situations where a collective actor sets rules, regulations, or explicit industry standards that firms in an industry or jurisdiction are compelled to follow. The focal institution can be a state (central or more local), an industry association, or a centrally organized multi-stakeholder initiative.

‘Constitutive’ power (diffuse-collective) describe situations where the gradual spread of norms or the loose organization of NGOs and social movements have indirect effects on firm practices in an industry or region.

Of course, these four types of power are not mutually exclusive. This means that in any situation, it is very likely that all four types of power are present and active. As such, they often develop in importance sequentially, and eventually become layered and combinatory. The paper provides a tool kit that can help illustrate the complexity and dynamism of power that infuses industries, regions, and global economy.

To help make these abstract concepts more concrete, the paper includes three short cases studies – power in the wine GVC, the creation of labor standards through multi-stakeholder initiatives in the apparel GVC, and the rise of technology platforms in mobile phones and mobile operating systems (such as Apple’s iOS and Android). Each case study identifies the nature, historical development and overlaps of the four types of power, and reveals the utility of the framework for organizing research on GVCs and better understanding the evolution of the global political economy.

From Entrepreneurship to Rentiership in Technoscientific Capitalism

The DBP Blog is running a short series of contributions from our visiting scholars. This week, Kean Birch blogs on Entrepreneurship and Rentiership in Technoscientific Capitalism. Kean Birch is Associate Professor, Department of Geography, York University, Canada. He has recently visited DBP, working on a paper on “Technoscience rent: Towards a theory of rentiership for technoscientific capitalism”.

By Kean Birch

I want to start this blog by writing about tractors.

Writing on the Motherboard website, Jason Koebler argues that American farmers are buying black-market software from Ukraine in order to hack their John Deere – and other manufacturer – tractors because those manufacturers have made it increasingly legally difficult to do “unauthorized repairs” on those tractors. This is because, as part of their license agreements with tractor manufacturers, farmers are forbidden from “tampering” with their tractor’s software. It all sounds like the plot of a William Gibson novel.

According to Koebler – and others like Kyle Wiens, writing in Wired – tractor manufacturers are engaged in a process of reconfiguring the very nature of ownership and, by extension, of capitalism itself. According to the like of Wiens, for example, manufacturers like John Deer are ‘destroying the very idea of ownership’ by telling farmers that they “don’t own their tractors”. At the heart of the issue is whether consumers own the electronic software that now underpins most physical hardware – including in tractors, cars, mobile phones, computers, and a range of so-called “smart” home products. All of this is rather amusingly deconstructed by the popular Twitter account, Internet of Shit, but it has real political-economic repercussions that are worth thinking about and theorizing.

As I see it, these are examples of what I am calling rentiership, which I have been writing about over the last year or so – see here, here and here – as have others like Steve Fuller, Peter Frase, and Andrew Sayer. Through this concept, I am trying to get a handle on the transformation of contemporary capitalism engendered by its increasingly technoscientific underpinnings, as evidenced by the tractor example. Simply, rentiership involves the extraction of value from economic activity – very broadly conceived – as the result of the ownership and control of a particular resource (or asset), primarily because of that resource’s inherent or constructed productivity, scarcity, or qualities.

Rentiership necessitates an examination of how a diverse array of things (e.g. infrastructure, data, knowledge, bodies, personalities, climate, etc., etc.) are being turned into assets – that is, a resource that accrues revenue over time. According to people like Eve Chiapello and others, this assetization process involves the definition of an asset’s boundaries, its measurement, and then its valuation in monetary terms. Turning something into an asset reflects the notion that markets are instituted by a range of knowledges, practices, and actors, including, in this context, accounting rules (e.g. Systems of National Accounts and the identification of assets versus expenditures), the re-categorization of things like personal data as a ‘new asset class’, and an array of experts and policy-makers needed to ‘establish’ value and validate these changes (e.g. economists, lawyers, consultants, etc.).

Rentiership represents the accumulation strategy, process, and priority that enables the capture of value from of these increasingly diverse assets. While economic rent theory has a long history, stretching back to Adam Smith and, especially, David Ricardo in the 19th century, much of the analytical thinking has focused on the implications of land ownership for entrepreneurial activities. Since then, rent theory has been extended to other resources and assets, such as knowledge and intellectual property – an area of research pursued by business school heavyweights like David Teece at Berkeley as well as their opposites like the Autonomist Marxist Yann Moulier Boutang. Even The Economist is now happy to declare that the “world’s most valuable resource is no longer oil, but data”. As more and more things are turned into assets – essentially tradable and capitalized property – then more and more things end up enclosed by the extension of property rights, thereby limiting access to them.

It is possible to unpack rentiership and think about different forms of rentiership, which can obviously overlap with another, based on different forms of ownership and control, including:

• Government fiat: for example, Romain Felli argues that emissions trading represents a form of ‘climate rent’ in which governments create an entitlement (to emit) and then simply grant that entitlement to firms who can then capture value from it.
• Monopoly: for example, Christian Zeller has written about the monopoly rights engendered by intellectual property rights (IPRs) because they usually cover unique assets that are hard to replicate or substitute (e.g. there is only one copyright for music by Metallica).
• Reconfiguration of markets and technoscience: for example, I am interested in how social actors configure markets and technoscience in order to extract value from research and innovation financing.

In order to give some meat to the skeleton of these more analytical arguments, I want to finish off with a couple of examples. The first is a more traditional example of rent-seeking – as defined by neoclassical economists – while the second is meant to illustrate how rentiership can be applied in other settings.

First, Turing Pharmaceuticals represents an example of rent-seeking, although with a twist. Back in 2015, Turing bought the marketing rights to a generic drug called Daraprim and raised its price 5000% – from US$13.50 to US$750 per pill. It seemed like a clear case of rent-seeking as Turing obtained market exclusivity – monopoly basically – from the FDA as the result of agreeing to test whether Daraprim is compliant with current regulations. However, other firms could also undertake this testing, but Turing convinced the previous rights holder to starve the market before they bought Daraprim’s rights so that other firms could not get hold of the drug in order to do said testing themselves. They then changed the distribution channels in order to limit access. I see this as more complicated than simple rent-seeking. It is, in my view, a form of rentiership involving the creation of monopoly through regulations, as well as reconfiguration of markets by Turing.

Second, I have to make a confession first: I like watching YouTube videos of people playing computer games, so-called ‘LetsPlay’ videos. I have basically replaced my terrestrial TV watching with these YouTube videos. These LetsPlay videos are a really interesting phenomenon, with some LetsPlayers becoming social media superstars (e.g. PewDiePie has over 55 million YouTube followers and is the most followed person on the platform). It is interesting to analyze how they turn playing computer games into something they can extract value from. At base, it is about extracting value from their personality (e.g. humour, zaniness, skill, etc.) by monetizing it (e.g. through ads). I see it as another example of rentiership in which the ‘ownership’ of an asset enables the extraction of value from it. However, unlike the above example, it’s probably less socially egregious.

Over the next few years I am going to try and puzzle my way through rentiership in all its shapes and sizes, and will hopefully be able to say something interesting, maybe even insightful, about contemporary capitalism as I do so.

Address on the Current State of Academic Freedom in Hungary

Prof. Daniel Deak of Corvinus University of Budapest visited DBP in June, lecturing on the issue of academic freedom in Hungary at present.

By Daniel Deak
Corvinus University of Budapest
daniel.deak@uni-corvinus.hu ©

Budapest, 9 June 2017

Since 2012, there have been abrupt and radical changes in the operation of the system of Hungarian higher education. It is a preliminary condition for meeting the historically corroborated professional standards of academics that academics exercise freedom. As it cannot be done individually, but in cooperation, through a collegial system, academic freedom is always combined with collective action. The institutional basis for such a freedom is university autonomy, the lack of which makes a serious barrier to the full development of a character of “homo academicus“. This is now the case in Hungary.

Apparently, the status and ethos of “homo academicus“ have been in crisis all over the world. In a time period of internationalisation, mass production and digitalisation, academic activity is no longer a matter of artefacts. Groups of scholars, tutors and students emerge in a sphere where modules have been developed to increasingly compare the products of academic activity with each other. Although these changes convert academic performance into more standardised and measurable knowledge, they may also make the style of academic work mechanical, pushing out ingenuity and imagination. Academic activity has been brought closer to the economic standards of efficiency and measurability: This is a threat to academic freedom.

1.
Social stakeholders and politicians are all the more critical towards academic performance. This is also true in Hungary’s case. The situation of this country is still unique. The Hungarian institutions of higher education have been inadvertently reduced in size, and they are also subject to unstable and unpredictable governance of higher education. Sometimes they have to look at the ministry of human resources as if it were a castle like in the novel of Franz Kafka Das Schloss: it is not clear what the lord of the castle will decide, and how and why decisions will be taken there.

In Hungary, the manifesto addressed to academics[1] was an important step in the process of developing capacities and facilities to organise ourselves throughout Europe. Having learned the manifesto, we held debates in Budapest to discuss how it can be relevant to Hungarian academics. We strongly agree with the authors of the manifesto that we have to defend ourselves against the illicit interference of a profit-based economy with academic matters. We cannot accept narrow-minded instrumental rationality and the fact that academic activity would be tantamount to prefabricated knowledge instead of craft activity.

One has to understand that, since September 2012 – the date when the new law on higher education took effect – we have been suffering from the double pressure of economic and political intervention. Notably, the Hungarian economy cannot be described by Western standards. For a serious lack of market access, it is our oligarchs who dominate big economic projects. The EU funds received have greatly contributed to maintaining a kind of state capitalism and managed democracy.

In Hungary, regulatory capture has been abundant in recent years. Everything is fluid and contingent on the formulation of an abruptly changing political will. The government concludes the so-called strategic agreements with selected companies that purchase the benevolence of the government. Under these circumstances, economic intervention does not have the same meaning as in countries where effective and transparent markets operate.

Centralisation in Hungary has overgrown. This has not simply happened due to the intention of certain individuals. It is because there are no longer any institutional guaranties to stop the high centralisation of political power. There is no private life, and everything has been subject to political speculation and ideological considerations.

Under these circumstances, the production of academic knowledge has become extremely vulnerable. The words of the notorious Rektoratsrede (Rector’s Speech) of Martin Heidegger are true in the case of Hungary: academic knowledge can only be viable if it is ready to serve leadership (Führerschaft). This awkward knowledge is subordinated to the promotion of volition. In this instance, academic freedom is not appreciated. On the contrary, it is merely seen as empty negativism. Positive contents could allegedly not arise unless academic knowledge is sponsored by out-of-academic guidance.

The principles of Magna Charta Universitatum (unity of academic knowledge, academic freedom, independence from the State, and humanity), solemnly declared at Bologna in 1988 cannot be enforced in Hungary. Autonomy has been explicitly taken away from public universities (that is, from most Hungarian universities). Many decisions of a ”rector magnificus“ in Hungary must be countersigned by the chancellor, nominated by the government. The resolutions of the university senate may be subject to the approval of the so-called consistory, dominated by the government. For instance, the four-year-strategy of research, development and innovation that is adopted by the senate must also be approved by the consistory.

Academic freedom is artificially broken down into the so-called academic and non-academic parts. Determination of the contents and methodology of education and research belongs to the first part. The issues of organisation, finances and staffing fall under the second category. As academic activity cannot be interpreted in the handcuffs of this artificial distinction, academic freedom withers away in practice.

The human and financial resources of academic activity are strictly allocated by the government. Academic specialisations are determined centrally. The application for establishing new academic specialisations is subject to the preliminary approval of the government. The Hungarian Board of Academic Accreditation has in fact lost its independence. The preferences of students in choosing specialisations are biased by arbitrary government decisions. For example, recently an undersecretary sharply and publicly criticised the ELTE University (the no. 1 university of the country) for its intentions to advertise gender studies. The government also immediately announced that another (public) university is going to launch family studies to compete with the ELTE-based gender studies.

Laws on the operation of the institutions of higher education are constantly changed, even several times a year. Heavy under-finance has been a standard since 2012. By 2016, Hungarian universities have lost approximately one-third of their resources (students and professors, specialisations, financial resources, etc.). This means, among other things, that universities are compelled to make use of their resources obtained through various applications (e.g., for EU funds) to finance their daily operations. Thus far, they have been able to survive – although with serious restrictions – but they cannot see any future.

2.
A recent example for the attack against academic freedom is the amendment of the Higher Education Act through bill No. T/14686, decided this April. The Hungarian government challenges the operation of the Central European University at four points at least:
– CEU is not substantiated by an international treaty as required by the new law since the basis of its foundation was not a special agreement made with the Hungarian government, but simply the possibility arising from the freedom of enterprise and education. By making use of this, a legal entity, duly registered in the State of New York, has been able to start its activity of higher education in Hungary, benefitting Hungarian society and obtaining international reputation;
– CEU does not have a parent institution that would effectively operate in the place of incorporation (that is, there is no university operating in the state of New York under the name of CEU) that would be required by the new law, although such a requirement does not exist under the law of the State of New York;
– due to the amendment, the academics of CEU that reside outside the European Union would simply not receive work permit in Hungary after 31 December (to date, this has not been legally required for those who have undertaken a job at a registered institution of higher education;
– due to the amendment, the academic programmes taken over by CEU from universities that reside outside the European Union would be subject to approval of the Hungarian authorities in Hungary after 31 December, which has not been legally required to date.

Unfortunately, making improper references to international treaty provisions has been an established instrument of the Hungarian government’s educational policy. For example, as to church universities, the government provides special treatment to them by referring to the fact that these universities operate under an international treaty, which is not difficult, e.g., for Catholics if agreements with the Vatican City State are considered as international treaties. It is Hungary’s sovereign right to impose conditions for the commencement of academic activities, indeed. The legislation cannot, however, be discriminatory.

The current bill is addressed to a single operator, that is, to CEU. Notably, the Andrássy University will presumably not be affected, the operation of which is supported by an international treaty, under which the parties may derogate from the application of the conditions laid down by national law. The Hungarian law is a new case of regulatory capture, the victim of which is this time an internationally renowned university.

The attack against CEU is a challenge to all Hungarian universities. It is unfortunate, among other things because for decades, CEU has been deeply integrated into the academic life of Hungary. Its removal by administrative force would be a serious loss for the Hungarian academic sector which we cannot tolerate. Indeed, the CEU portfolio is not complete (e.g., it does not provide undergraduate programmes), but wherever it launches academic programmes, it has clearly increased over other Hungarian universities (being generously provided by financial means). We have all benefited from the success of CEU, and the loss of CEU would be a loss for all of us. For example, where are we going now to get access to books or studies that have been available in the CEU Library? The inadequate libraries of public universities present no evident alternatives.

The Hungarian government is sovereign in deciding whom to admit entry into the territory of Hungarian higher education from outside the European Union, and under which conditions. It can set a barrier for those who do not come from the European Higher Education Area. It is no appropriate message to academia if the government continues to fight against the ideals of academic freedom. Furthermore, this action of the Hungarian government is an unfriendly message, addressed to the State, under the laws of which CEU has formally been established. By amending the law, the government leaves a message to all of us who are present at Hungarian universities: Apparently the government has the right from one day to another to change arbitrarily the operating conditions of higher educational institutions, disregarding institutional autonomy.

Is it perhaps not only the idea of an open society that has gone wrong with the Hungarian government? Or is it a problem with CEU that it provides graduate students originating from the former Soviet Union’s successor states in large numbers? Is standing up for the values of knowledge, democracy and the rule of law deemed to be subversion?

For Hungarian academics, the most important task is currently to struggle for academic freedom. A series of financial, legal and administrative considerations can be enumerated. The main aspect of this struggle is of a political nature, however. It is important to make our problems known to society as much as possible. Publicity is a crucial aspect of this activity. Intervention of the press helps our personal protection. There is no chance for success unless cooperation is developed with other civil organisations that are active in the various fields of human infrastructure. Besides, it is also important for us to get involved in international cooperation, to receive and show solidarity in the realm of academia.

[1] Willem Halffman, Hans Radder, ”The Academic Manifesto: From an Occupied to a Public University“. Minerva, Vol. 53, Issue 2 (June 2015)

What’s He Building?

The DBP Blog is running a short series of contributions from our current visiting professors. This week, Christian de Cock blogs on Donald Trump and the prospects of alternative modes of social and economic organizing. Christian de Cock is Guest Professor on the AlterEcos project from 27th March to 26th September 2017.

By Christian De Cock, University of Essex

President Trump revels in his reputation as a builder. Nobody, he said during his campaign, builds walls better than me.[1]

Everything that begins as comedy ends as a horror movie [2] (after Hegel and Marx)

The republic has lost nothing but its rhetorical arabesques, the outward decencies, in a word, the appearance of respectability… It required only… [the 2016 election] for the membrane to burst and the monster to spring forth .[3]

John Campbell wrote a DBP blog on Trump last month borrowing words and imagery from well-known children’s tales. In my own framing I’d like to use a somewhat darker and nasty little tale which finds it inspiration in the darker recesses of Americana – the ambiguous Tom Waits song What’s he building?, which is about lurking horror, but also about paranoia and irrational fear of the unknown. I have had of course the benefit of a few ‘interesting’ (as they say in England) Trump episodes since the publication of John’s blog: the sacking of FBI director Comey and his subsequent testimony effectively calling the president a liar, the bizarre overseas trip to the Middle East and Europe, the withdrawal from the Paris climate agreement. Building on the “big, beautiful wall” – to borrow one of Trump’s rhapsodic campaign phrases – has yet to begin, but the political demolition project certainly seems in full swing. Trump seems to offer some strange anti-politics organised around resentment at past losses – “our Greatness has been taken from us” – and an almost casual disdain vis-à-vis the future. Perry Anderson’s description of the Trump cabinet of “bankers and businessmen, generals and a couple of politicos of right-wing stamp” as having stepped straight out of a George Grosz painting seems a painfully accurate description of reality.

My aim here is not to explain the Trump phenomenon as John already did, or practise some crystal ball gazing as to how this all might end. Inspired by the deep ambivalence of Tom Waits’s song, I want to turn briefly to a key work of Fredric Jameson, Valences of the Dialectic,[4] in which he performed a dialectical reading of the giant retail corporation Wal-Mart, thinking the negative and the positive together at one and the same time. This is no simple weighing up of cons and pros (which have been conspicuous by their non-existence in the case of Trump’s presidency anyway) and creating some kind of balanced scorecard. Rather Jameson’s premise is that even the most obnoxious of phenomena can serve as a springboard for utopian impulses and wish fulfilments. The way Jameson approached Wal-Mart is very much reminiscent of the considered academic opinion of Trump these days: “The picture is unappetizing, and the prospects for the future… are positively frightening and even, particularly if you have a bent for conspiracy theory, dystopian in the extreme”. Yet, he was able to express an “aesthetic appreciation… for this achievement” (and indeed, did Trump not confound general expectations with his quite astounding electoral victory?), but such “admiration and positive judgement must be accompanied by the absolute condemnation that completes the dialectical ambivalence”. Let there be no misunderstanding: I have no expectation whatsoever that anything good or progressive can come from Trump’s presidency; rather the positive valence of the Trump phenomenon lies in its contribution to the potential reawakening of the imagination of possible and alternate futures. Trump’s presidency should be seen then as an opportunity to exercise our utopian imagination – to think of alternative modes of social and economic organizing – rather than an occasion for moralizing judgements or hopes/pleas for a quick return to the status quo. Or as Naomi Klein put it in her new book on Trump: ‘No is not Enough’!

There are already some signs of the galvanizing effect of Trump’s presidency with mass demonstrations having taken place and militant actions openly discussed, which in turn are starting to create a space for a radicalization of political culture at large. People are beginning to question what is actually going on, what is excised from the imagined order of things, and what could be possible. But there is a danger that this re-awakening of the need for alternative futures, repressed and paralyzed for so long, gets drowned in the moralizing tide in which Trump serves as common ogre for both those who would like to contribute to the project of replacing a social order bent on social polarization and ecological ruin with something better, and those who simply aim to restore America to where it was a year ago.

Publications as politically far apart as the Financial Times[5] and the London Review of Books or New Left Review have pointed out that Trump may very well be a symptom of deep socio-economic problems but certainly not the cause.[6] They suggest that the past quarter century of liberal triumph and consolidation effectively prepared the individual ingredients that enabled the events of 2016 (we must of course include the Brexit vote here). Whether you call it global capitalism, neoliberalism or ‘just-the-way-things-are going’, it is clear that a certain proportion of the population felt so disenfranchised that they engaged in a nihilistic rebellion against a system that had routinely blamed them for their own plight. This was brought home to me quite viscerally the morning after the Brexit referendum. When dissecting the result with a colleague over coffee, she told me she was pretty horrified at her mother’s reason for voting ‘Leave’: “I’m completely fucked so everyone else might as well be fucked too”. This ‘pre-political language’, to put it euphemistically, based on everyday experiences of economic and cultural deprivation is representative of the constant breaches of the rules of civilized speech we have witnessed over the past year, Trump being the exemplar of what it means to be unprofessional in politics. Yet, as Jan Werner Müller suggests, it would be far too easy to describe a large part of the population as emotional basket cases waiting to be seduced by a demagogic impresario of anger and anxiety. People were and are angry and anxious for good reasons as they are looking for a matrix to make sense of their lives in a world that says their views don’t count and which can no longer sustain their organizing fantasies of ‘a good life’; a world where social structures have become increasingly unstable and unreliable and therefore uninstructive to people living in them. We certainly seem to be living in emotionally charged times and we have to ask ourselves how useful our dominant intellectual concepts and categories still are in processing such an explosion of uncontrolled forces. At the very least we have to admit that traditional economic and sociological theories have lost much of their predictive power, something Wolfgang Streeck[7] attributes to the “pulverization of collective agency” over the last quarter century.

Mark Schwartz’s recent DBP blog on inequality and declining growth points to the underlying impasse of the regime of accumulation that has been in place since the 1980s. To this we can add rising public and private debt, especially since the global financial crisis. And yet, was the promise of neoliberal globalization not precisely the delivery of increased prosperity for all? Wolfgang Streeck therefore suggests, rather provocatively, that the ‘post-factual age’ did not begin in 2016 but rather that the neoliberal revolution has “developed the propagation of illusions into the fine art of democratic government”. Marx’s take on the rise of Louis Bonaparte which serves as an epigraph to this blog seems both prophetic and timely in this context: “The [American] republic has lost nothing but its rhetorical arabesques”. Our particular historical moment is therefore no occasion for moralizing judgements or a regressive nostalgia for the Obama era (or indeed the Bush era).

As I am putting the finishing touches to this blog the results of the UK election are rolling in. The situation is still somewhat fluid but it seems clear that no party will achieve an overall majority, presaging a period of instability and indeterminacy. The largely unexpected decent performance of the Labour party seems to indicate that underneath all the anger, a significant part of the population are genuinely yearning for a vision of a progressive future, a story they can feel part of again. What that story will be and where we will go from here is highly uncertain of course. Antonio Gramsci’s notion of the ‘interregnum’ – a period of a period of uncertain duration in which an old order is dying but a new one cannot yet be born – seems to describe our historical moment rather well. It is a period, Gramsci suggests, when “a great variety of morbid symptoms will appear”[8]: unexpected and even grotesque events may occur at any moment as chains of surprising events take the place of once predictable structures. But we certainly should not downplay our own agency in all this and resign ourselves to living in the ruins of a capitalist society as if it were “an adventure playground for [people] to demonstrate their personal resourcefulness and with good luck get rich”.[9]

Perhaps the opening lines of another Tom Waits song are apt as postscript to this blog then. They are – perhaps rather too neatly – from his Copenhagen song, Tom Traubert’s Blues (Four Sheets to the Wind in Copenhagen).[10]

Wasted and wounded
it ain’t what the moon did
got what I paid for now…

Quite!

 

[1] Heathcote, E. (2017, 28 April). Who’s going to build Trump’s wall? Financial Times. Retrieved from https://www.ft.com/content/f4806066-26a5-11e7-a34a-538b4cb30025

[2] Bolaño, R. (2007). The Savage Detectives. London: Picador – p. 462.

[3] A slightly adapted quote from Karl Marx’s ‘The Eighteenth Brumaire of Louis Bonaparte’ written in 1852.

[4] Jameson, F. (2009). Valences of the Dialectic. London: Verso – p.420-423

[5] Luce, E. (2017, May 5th). The Siege of Western Liberalism. Financial Times. Retrieved from https://www.ft.com/content/c7444248-3000-11e7-9555-23ef563ecf9a

[6] As Pankaj Mishra put it rather scathingly: “Many other mainstream periodicals now read like parodies of New Left Review, as they attend belatedly to the failings of global capitalism – most egregiously, its failure to fulfil its own promise of general prosperity”. https://www.theguardian.com/politics/2016/dec/08/welcome-age-anger-brexit-trump

[7] Streeck, W. (2016). How Will Capitalism End? Essays on a Failing System. London: Verso.

[8] As Gramsci wrote in his ‘Prison Notebooks’ (Quaderni del carcere) from circa 1930: “La crisi consiste appunto nel fatto che il vecchio muore e il nuovo non può nascere: in questo interregno si verificano i fenomeni morbosi piú svariati”.

[9] Streeck, W. (2016). How Will Capitalism End? Essays on a Failing System. London: Verso – p.41.

[10] Live version: https://www.youtube.com/watch?v=vGpwgHqlfWo

 

Inequality and Economic Growth

The DBP Blog is running a short series of contributions from our current visiting professors. Herman Mark Schwartz is Otto Mønsted visiting professor from the 1st of May to 30th of June 2017.

By Herman Mark Schwartz, University of Virginia

What are the causes of rising inequality and what does inequality mean for growth in the global and national economy? I’m working on three projects addressing this question at the macro, meso, and micro level. At the macro level I have several papers with Randall Germain (Carleton University, Canada) that show why the US dollar remains central to the global monetary system. The US trade deficit is a feature, not a bug, because it helps generate global growth. Normally we think of GDP as being composed of C + G + I plus net exports (consumption, including government transfers, plus government spending net of transfers, plus investment). Growth in GDP, ∆GDP, thus must be equal to ∆C + ∆G+ ∆I +∆ net exports. Yet the US economy has had faster rates of growth than Germany, Japan, and, lately, Europe, despite running current account deficits since the 1980s. Germain and I examine the domestic political structures that made current account deficits politically acceptable in the US (until recently) and politically and economically necessary in Germany, Japan, and Europe. Put too simply, American inequality enables European states to attain a modicum of growth, thus sustaining the equalizing effects of Europe’s welfare states. Put equally simply, European (and Chinese) trade surpluses then need to seek an outlet, and perforce, mechanically) end up as investment flows into the US. This is the source of the global savings glut, which is equally so a consumption drought in Europe and China.
At the meso level, a book length project looks at changes in corporate strategy and structure over the past half century that have led to slower growth in the US and thus global economy. Firms shifted from seeking profits through control over physical capital to strategies seeking monopoly profits through control over intellectual property rights (e.g. patent, copyright, trademark, brand…). Organizationally, vertically integrated structures gave way to vertically disintegrated ones. This change in strategy and structure produces high levels of inequality in profitability for firms, with negative consequences for all the components of GDP. Globally, the distribution of profits among firms is highly unequal. The top 2000 firms out of 28,000 firms with annual revenues over $200m captured 1/3 of the profits of all those firms during the past decade. The gini index for profits among the top 2000 firms over the past decade is 0.69, or roughly the same as the gini index for South Africans incomes.
Consequently, we end up with an economy in which there are highly profitable firms that make few productive investments (because e.g. software coding is essentially just wage payments that create few multiplier effects) and low profit firms that lack the profits to make investments with high multiplier effects. This inequality limits ∆I. Concretely, this is why Apple (an almost pure IPR firm – Apple only writes code and does design) found it necessary to give Corning Glass (a physical capital heavy firm that makes the material for touchscreens) $200m in order to upgrade its production processes in 2017.
The shift in strategy and structure also concentrates income into a small number of hands, because highly profitable firms pay good wages, while moderately profitable firms and firms with weak profits pay their employees less. This shift limits ∆C, while also encouraging rising housing prices in cities where IPR firms are located. Their well-paid employees bid for positional goods like housing. Finally, Firms whose profitability rests on IPRs find it easy to divert profits into tax havens. Legal ownership of a patent or copyright can be assigned to a shell company with no legal tax domicile, like Apple Operations International (registered in Ireland, but with no legal tax domicile). This shift limits ∆G by starving states of fiscal resources. Currently, the 1200 largest firms globally have about $3.5T (€3.2T; DKK23T) stashed away in ‘fiscal paradises.’
Finally, at the micro level, I have two projects on housing. One is with Len Seabrooke (CBS, Dep. of Business and Politics) and the other with Lindsay Flynn (Wheaton College). Both examine why, as Americans would put it, more and more children can’t get out of their mom’s basement: why 25 to 34 year olds cannot find affordable housing. One side of this, obviously, is horrible labor markets. If you can’t find a job or the only jobs have low wages, you can’t afford to move out or accumulate a down payment for a house or apartment. The other side, though, is rising housing prices. It will come as no surprise to anyone living in Copenhagen that housing consumes an ever-increasing share of income. For young people just starting out, macro-economically, the shift of income towards housing rewards rentiers who consume little, and thus contributes to the problem of slow growth and thus low wage and employment growth. That said, there is considerable variation in who is hurt. As the work with Flynn shows, young people with good jobs and access to parental resources are still able to “launch.” But an increasing share of the millennial cohort in the OECD lacks both good income and parental resources. The result is that families are ‘re-familializing,’ pooling resources, rather than de-familializing as the academic literature up to about 2010 had predicted.
These projects connect where micro and macro collide in US and other trade deficit housing markets. Chinese excess savings (and flight capital) flows into US (and Australian, British, and Canadian) housing, pricing the young out of the markets with the best employment prospects. Although the ownership of these flows has shifted from mostly Asian central banks to private investors, the macro- and micro-economic effects are the same: slow growth from lack of investment in productive assets and social dislocation from over-investment into passive and unproductive assets like real estate.
Published papers from all these projects are available on my personal website through my CV: http://www/people.virginia.edu/~hms2f/vitae.pdf

Through the Looking Glass with Donald Trump

By John L. Campbell

”Magic mirror on the wall, who’s the fairest one of all?” As any fan of Walt Disney’s classic film Snow White knows, this question was uttered by the Evil Fairy who put Snow White under her spell until Prince Charming came along and snapped her out of it with a kiss. It is, of course, the evil fairy who thinks she’s the fairest one of all. In Washington these days, we might hear those words from Donald J. Trump, who managed to cast a spell over enough sleepy voters to become what he surely believes is the fairest—not to mention greatest—president of all. I’ll explain how he did it in a minute. But first let me review some of the reasons why his spell is so wicked.

Trump lied repeatedly on the campaign trail, distorting the truth over 70 percent of the time according to reputable fact checkers. He has lied in office too, notably accusing Barack Obama of tapping his phones during the campaign—without a shred of evidence. He also tried twice to stop Muslim immigrants from entering the United States, although the courts blocked him both times on constitutional grounds. He endorsed health care reform that would likely deprive 24 million people of health insurance. He offered a budget that would cut funding to Planned Parenthood, an organization that millions of women depend on for cancer screening, birth control and other routine health services. He questioned whether the science of climate change was accurate. And he insulted Russia, Germany, Australia, China, Canada, Britain, Israel and South Korea, among other countries.

What gave Trump the power to cast his spell in the first place? First there’s the economy. Nearly a half-century of wage stagnation, rising inequality, diminishing upward mobility, mounting private debt, and declining private sector employment, particularly in traditional manufacturing industries, is part of the story. The subtext is that the Golden Age of American prosperity, spanning the first three decades after the Second World War, began slipping and with it so did the economic prospects of many working and middle-class families. This was fertile ground for Trump’s populism.

Then there’s race. America has an abhorrent history of race relations. Although things have improved on some fronts, especially for African Americans since the 1960s thanks to the Civil Rights movement, lately the situation has deteriorated. African Americans are often blamed for crime, drugs and other problems in our inner cities, even though social problems like these are often more a matter of economic class than race. Americans have grown concerned about Mexican immigrants taking their jobs, and since 9/11 about Muslims threatening their safety. In fact, both problems have been blown way out of proportion. Most jobs taken by Mexicans are those that Americans don’t want, and since the Great Recession more Mexicans have tried to leave the country than enter it. Since the 9/11 attacks the Muslim threat has been virtually non-existent. In the last 15 years, Muslim extremists have been responsible for 0.0005 percent of all murders in the United States. If we include those killed on 9/11 it’s still only about one percent. Nevertheless, American scapegoating of these minorities for our problems has grown in recent decades. Trump is a pro at scapegoating.

The rise of conservative ideology is a contributing factor too. Americans and many of their leaders have fallen under the spell of conservative economic Sirens promising that the only route to a better world is through tax cuts, less government spending, and fewer regulations on business. Many also believe that God will help them through whatever personal economic troubles they may be having, but let’s not get into that. There is precious little evidence that the conservative mantra works as advertised. Europeans in countries suffering the aftershock of post-financial crisis austerity programs know what I’m talking about even if Trump doesn’t.

Finally, since the mid-1990s the Republican and Democratic parties and their leaders have become so polarized that they can’t seem to agree on much of anything. Since the birth of the Tea Party’s Freedom Caucus in the House of Representatives, any significant policymaking has ground to a virtual halt. It’s not much better in the Senate. No wonder that only 17 percent of Americans nowadays approve of the job Congress has been doing! It’s pathetic.

Enter Donald Trump—a narcissistic pitchman extraordinaire. With his magic wand he promised to be the best job creator God ever gave America. He promised to build a wall along the southern border to keep out the Mexicans. He promised to crackdown on Muslim immigration. He promised to cut through the Gordian knot of polarization in Washington by making deals no one else could make, and if that didn’t work, launching a fusillade of executive orders to blast through the congressional logjam. He promised that his deal making would also help rewrite America’s trade agreements, and repeal and replace Obama’s signature health care law. In short, Trump promised to Make America Great Again, a core campaign slogan he repeated ad nausea framed in all sorts of nationalist, racist, xenophobic and occasionally sexist language.

His spell worked. Taking advantage of this economic, racial, ideological and political climate he lulled enough voters to sleep to win, partly because some Americans actually believed him, others saw him as an alternative to the failed political establishment, and the rest hoped that his election would provide them with entrée to power and influence in Washington.

What will it take to break the spell? Ironically, Trump may turn out to be not only the Evil Fairy but also the Prince Charming in this story. If he does what he promised, people who voted for him will experience the pain and suffering of his policies, wake up and turn against him and the Republican Party in the 2018 mid-term elections returning Congress to Democratic hands. If they don’t Trump’s fairy tale will likely turn into a real nightmare.

The DBP Blog is running a short series of contributions from our current visiting professors. The post by John L. Campbell is the first one.

Long-term Livelihood Changes in Tanzania: Personal Reflections from Revisiting Villages after 20 Years

Of roads (and other big changes)

I open my eyes from a brief nap as our driver glides along a brand-new and shiny highway. I need to recollect myself for a moment to understand where I am. Can it really be the Songea-Tunduru-Masasi road, which used to be one of the most treacherous transport links in Southern Tanzania? And can it be that we left Mtwara this morning at 7am to arrive in Namtumbo well before dark, during the main rainy season? In the mid-1990s, this trip used to take two to three days, if one could come through at all. Namtumbo has grown dramatically, with brand new neighborhoods sprouting from fields that used to produce only maize. New guest houses, including the one we are staying, are everywhere – offering great value in accommodation for the equivalent of around USD 10 per night, including breakfast. There is electricity in most parts of Namtumbo town, and more strikingly, many houses have solar panels. The streets are filled with motorcycles and a substantial number of cars and trucks. From this angle, Tanzania looks more like Vietnam now than the rural Tanzania I remember from twenty years ago. My academic mind checks my potentially-naïve heart:  I tell myself, all of this probably does not make a difference to farmers in the small villages around the town, like Ligunga, a tiny village almost 100 Km south on the tarmac, where I will travel tomorrow.

I was analytically wrong.

The next day, we head to Ligunga, at the height of the rainy season. The last time I tried to reach the village in 2003, our car lost traction on the single lane dirt track and flipped over in a ditch, sending us back to the nearest big city, Songea – an experience I was keen to avoid repeating. The dirt road, however, is now in excellent condition, especially given that it had rained heavily the day before. Improved infrastructure and proper maintenance are part of the explanation. We arrive at the village in less than three hours, as opposed to a whole day, or not at all. In the mid-1990s, the stretch from Ligera to Ligunga was basically impassable from January to April. Today, mini-buses ply this road every day, from Songea or Namtumbo to Ligunga and then continue to Tunduru and the gemstone mines on the other side of the region. People can bring their crops to town, go to the hospital, and travel much more freely than in the past—all at relatively affordable prices. This is not just my own observation, it also emerged consistently from our respondents during interviews and focus groups in Ligunga village.

Of solar panels (and other assets)

Having returned to two villages in Morogoro last year which had been part of my PhD research in 1996, I expected to see some expansion of commercial activities in Ligunga, as well as better housing quality and local availability of pikipiki (Kiswahili for motorcycle) transport. I was also aware that changes may be less pronounced in this remote village than in peri-urban locations, such as Mlali village in Morogoro. Still, I was surprised to see how many small shops had sprung up in Ligunga, and at the number of pikipiki (both privately owned and for hire). The most obvious observation, however, was the marked improvement in quality of housing and the presence of so many solar panels on houses, even on some of those which still had a thatched roof.

In 1996, when I last visited Ligunga, most houses were built of mud or raw mud bricks, and only the richest households (by local standards) had houses made of baked bricks, with metal sheet roofs and cement floors. Now, almost all houses are built with baked bricks and have metal roofs and cement floors. Even though the electricity grid has not yet reached the village, on average half of houses have installed solar panels. Some are bigger, others are smaller – yet, night-time illumination has arrived to a village which used to be pitch-dark at night, or with only an occasional flame from a kerosene lamp. I found a similar situation in Lipaya, a second village I re-visited during this stretch of fieldwork, in Songea Rural District. Lipaya, however, is located only 15 Km from Songea town, and the trends I just highlighted are even more pronounced there.

In both locations, we conducted focus groups, talked to village leaders and elders, and re-visited some of the original households where I had interviewed people 20 years ago. Things are better now, most people say. It was ‘maisha magumu’ (hard life) then, now it’s ‘maisha bora’ (better life). I am aware of Robert Chambers’ observations on biases, and that the first people seen are always those who have the most. I am only scratching the surface on this short visit, and we will find a lot more diversity in people’s experiences as we conduct further fieldwork. Still, it is quite clear that the distribution of wealth (on the basis of assets) seems to be following the same trends I found in Morogoro a year earlier: a movement from a pyramid distribution in the 1990s (with most households stuck in the bottom tiers) to a ‘pointed egg’ currently (with a substantial proportion of households moving into the second and third highest of four or five tiers). While the categories of wealth ranking in the two Ruvuma locations differ from those in Morogoro, the overall distribution is approximately the same. Given the relative abundance of land in the two Ruvuma locations in comparison to Morogoro, less importance is placed on land ownership, and more on assets such as housing quality, solar panels, motorcycle ownership, and access to funds to purchase agricultural inputs. In both regions, the importance of off-farm activities is more relevant in peri-urban locations than in more remote ones, as one would expect. Yet, participants in focus groups and interview respondents insist that asset accumulation and housing improvements were funded mostly from crop sales. So perhaps farming is not such a poor investment after all.

Of tobacco (and other crops)

For good and bad, tobacco and maize have been the engines of the rural economy in Songea and Namtumbo districts for many decades. The fortunes and misfortunes of farmers have gone up and down with it. I documented this thoroughly in my 2002 book Farmers and Markets in Tanzania. My burning question in my visit 20 years later was: is this still the case?

The answer is: yes and no (a typical and irritating academic statement).

Maize is still the main staple crop in the region, and especially in Lipaya maize remains the bulk of cultivation both for self-consumption and sales. The landscape confirms this. Maize cultivation was promoted in the 1980s by the Tanzanian government as part of turning the Southern regions into the main food basket of the country. This attempt led to a series of crises, first because of mismanagement of centralized marketing, then as a result of market liberalization that made agricultural inputs hard to afford for farmers. It now has recovered, thanks to a recent introduction of subsidies provided by the government in the form of vouchers to purchase fertilizers, and the wide availability of hybrid seeds that allow higher yields. However, maize cultivation is not as dominant as it used to be in the 1980s and mid-1990s: rice, pigeon peas, soy beans, sunflower and sesame cultivation and sales have also become important.

The most worrying trend for farmers in Ruvuma is the current crisis in tobacco marketing. It is not the first time this happens (earlier instances took place in the 1980s and late 1990s), but the extent of the crisis now is far more accentuated. Fire-cured tobacco has long been the engine of the rural economy in Ruvuma. It also led to deforestation and to health problems for farmers (not so much from smoking, but from the smoke produced in the curing process, and from nicotine rub-off from leaves at the time of harvesting). For more than a decade, from the late 1990s to the early 2010s, export companies were allowed by the Tanzanian government to supply primary cooperative societies with inputs on credit, seedlings, and private extension advice – recovering the credit at the time of tobacco sales. Each company had an exclusive agreement with a cooperative society, so that side-selling of tobacco by farmers to other companies (to avoid repaying debt) was kept under control. Production recovered dramatically.

Under political pressure, in the early 2010s this system was replaced by one where the Songea and Namtumbo Cooperative Union (SONAMCU), on behalf of primary societies, was tasked with input procurement and provision on credit. Late input delivery, problems in recovering debt, and poor management affected operations – just like when a similar system was attempted two decades ago. Banks refused to extend credit for later seasons, farmers failed to get enough inputs, and production started to fall accordingly. Tobacco exporters found it difficult to maintain operations in Ruvuma with dwindling production volumes. In 2015/16, they pulled out completely from Ruvuma region, concentrating their operations in other, higher-volume, tobacco-growing regions of Tanzania. In 2016/17, a new exporter entered the Ruvuma market on a trial basis, but will be purchasing only 250 tons, down from the heights of 5,000-7,000 tons of yesteryears. Only a few farmers are continuing with tobacco cultivation in Ligunga, none in Lipaya. Given the externalities of poor health outcomes associated with tobacco, this shift may be positive.

The ongoing process of crop diversification is essential to provide alternative livelihood paths for farmers. The cashew revival (a remarkable trend in other districts of Southern Tanzania, such as Tunduru, Masasi and Mtwara) has just started in the locations I visited. In Ligunga village, many farmers are going back to abandoned cashew plots, clearing them from overgrowth, applying sulphur, starting to prune old trees and planting new ones. Good prices and a government-run voucher system for purchasing sulphur and pumps are facilitating this process. This is promising, but it is still too early to assess whether alternative sources of crop income (cashews, oilseeds, rice) will make up for the end of tobacco. But at the very least, the tobacco crisis will alleviate pressure over deforestation and poor health related to the crop. Agriculture remains the engine for livelihood improvements in Ruvuma region, but the kinds of agriculture and the processes of making it profitable are changing.

 

Stefano Ponte is Professor of International Political Economy in the Department of Business and Politics, Copenhagen Business School. He is interested in transnational economic and environmental governance, with focus on overlaps and tensions between private governance and public regulation. He analyzes governance dynamics and economic and environmental upgrading trajectories in global value chains — especially  in Africa. He is particularly interested in how sustainability standards, labels and certifications shape agro-food value chains, and in how different forms of partnerships affect sustainability outcomes.

Long-term Livelihood Change in Tanzania is a project coordinated by Prof. Dan Brockington at the Sheffield Institute for International Development, and funded by the DFID-ESRC Growth  Research Programme (DEGRP) (2015-17). Under this project, a dozen scholars who carried out fieldwork-based research in Tanzania in the 1990s are conducting re-studies of the same domestic units, and of relative wealth changes in the wider communities in which the domestic units are situated.

Power to the people: What happens when populists take office?

This post was originally published on the 6th of January, but for unknown reasons disappeared from the DBP blog. It makes its re-appearance in its original form, which will hopefully be of relevance – even as political commentators’ opinions concerning Trump are turning from bewilderment to bemusement: 

On the 20th of January 2017, Donald Trump will be sworn in as the 45th president of the United States. Many political commentators’ main issue with Trump’s imminent presidency is that they simply do not know what to make of it. Not only did the vast majority of commentators fail to predict his election victory, they are also at a loss in terms of foreseeing what Trump will do with it: What can we expect of this business tycoon turned champion of the people? How will his populist slogans pan out in political practice?

The question is not only what Trump will do, but how he will do it; will Trump seek to circumvent the hallowed principles of checks and balances by populist means? And if yes, will he succeed? While there are certain indications that these questions might be answered in the affirmative, the aim of this post is not to speculate about the intentions of Mr. Trump nor to seek to predict the outcomes of his plans. Instead, I turn to an existing example of what happens when populists are elected, namely the case of Beppe Grillo’s Five Star Movement in Italy.

Obviously, there are many substantial differences between the politics of Grillo and Trump, just as leading a movement that obtained roughly 25% of the votes in the most recent Italian general election and having been elected to the position that is often referred to as the most powerful one on the planet hardly amounts to the same thing. Yet, Grillo has pointed to an important similarity between the two:

The mainstream media has often spoken of Pannocchia [Italian slang for Trump] in the same way they speak of our movement. Do you remember? They said that we were sexist, homophobic, demagogues, populists. They do not realize that millions of people no longer read their newspapers or watch their TVs. Trump capitalized on all this.

Here, Grillo establishes the point of comparison between Trump and his own movement as having to do with the ways in which both circumvent mainstream media and find new ways of connecting with the people. In broader terms, both Grillo and Trump have benefitted from a perceived rift between ‘the people’ and ‘the establishment’. Identifying and amplifying this rift is arguably the key to their – and other populists’ – successful mobilization of an electoral platform, but once elected, (how) can this platform be used for gaining actual political influence?

As a starting point for exploring this question, I will first provide a general definition and characterization of populism, then look closer into the populist reasoning of the Five Star Movement. Finally, I will turn to the issues of how the movement has fared after being elected and whether the Italian case offers any lessons in terms of the Trump presidency – and for populist incumbents, more generally.

 

The rise of populism

It has become common place to link such political events as the UK Brexit vote, the election of Donald Trump, and the establishment and electoral success of new parties and movements like Podemos in Spain, Syriza in Greece, and the Five Star Movement in Italy, not to mention the continued increase in support for such right-wing parties as the Front National in France, the Danish People’s Party, and the Sweden Democrats, with a general rise of populism (Moffitt, 2016). But what is it that links all these events and actors together? What is populism?

Populism basically relies on the establishment of a dichotomous relationship between ‘the people’ and ‘the elite’. Based on this dichotomy, populists argue that current political institutions and procedures no longer serve (or never have served) the interest of the people as a whole, but instead are controlled by and cater to a small elite. In a final argumentative move, populists then propose to be able to serve the people better – in substantial as well as procedural terms. As Jan-Werner Müller (2016) observes, this argumentative strategy may be employed across the political spectrum. Thus, there really is nothing that unites the various populist voices, except their rhetorical style, which according to Müller always shares three traits: it expresses anti-establishment and anti-pluralist identity politics. That is, populists claim to be speaking against the powers that be on behalf of the people as a whole, constituting this people in the process.

Ernesto Laclau (2007) details the idea that populism amounts to a rhetorical style or a certain form of reasoning; one that relies on a universalizing construction of the category of ‘the people’ for its success. According to Laclau, such construction is a necessary condition of all politics, but populism is nevertheless particular in its establishment of ‘the people’ in opposition to ‘the establishment’ and, hence, its circumvention of the usual rules of representative democracy. Populists, in short, gain influence by rhetorically establishing a ‘public demand’, which they can subsequently claim to be impelled by.

 

On the street: Giving voice to the people

In continuation of the notion that populism does not have to do with a particular set of political views, but with a certain rhetorical style or form of reasoning, let us now look at the specific articulations of this form in the case of the Five Star Movement. Here, one point of particular interest is how the movement not only positions itself as the voice of the people, but also prefigures (Maeckelbergh, 2010) the reforms that it envisions for society at large. That is, the Five Star Movement already exhibits the political principles and practices that it believes will enable the voice of the people to become the voice of power.

Beppe Grillo in una recente immagine ANSA/ GIORGIO BENVENUTI

Three such prefiguring strategies stand out: first, the organization of so-called V-days (where V stands for vaffanculo, but also invokes the V for victory and vendetta) of protest and mobilization. These physical displays of protest in public squares mimic those of other social movements, most notably Occupy Wall Street, and signal that the sheer volume (in terms of the numbers of protesters, but also the actual loudness of the protests) is an argument in itself. Second, the use of online voting to not only elect the movement’s political candidates, but also to decide what these candidates’ political stances should be. This extensive use of new technologies as platforms for decision-making as well as for mobilization indicates commitment to direct democracy in the majoritarian rather than the pluralistic form. Finally, the commitment to non-cooperation with established parties; given that the movement aims to bring down the current system of political representation, it does not negotiate according to the rules of that system or with those who support it. Instead, if one wants to influence the movement, one has to join it.

 

In office: From protest to pragmatism?

As mentioned, the Five Star Movement has had significant electoral success, but it is nevertheless not in a position to govern Italy singlehandedly, meaning that especially the last of the three abovementioned strategies could prove an obstacle to rather than a lever of the movement’s influence. Online voting and urban protest, moreover, are not immediately compatible with parliamentary procedures for negotiation and deliberation.

Thus, Grillo and his companions continue to be successful when ‘the power of the people’ can be exercised directly, as most recently witnessed in the constitutional referendum held in December 2016; here, a clear majority of the voters rejected the proposed changes to the constitution, a result that has been widely interpreted as a victory for Grillo and a further boost for his movement. However, in the day-to-day dealings of the Italian parliament the 163 members of the Five Star Movement, who were elected to office in 2013, are having a harder time – to the disillusionment of the electorate as well as the elected.

The trials and tribulations of moving from a positon of immaculate protest towards a recognition of the murky necessities of pragmatism are detailed in a new Danish documentary, Tutti a casa. Power to the People, premiering on February 1st. By then we will also have heard Trump’s inauguration speech and witnessed his first acts as president, providing initial indications of where he is headed and how he plans to get there. While the political organization that Donald Trump prefigured in his particular articulation of populist reason is very different from that of the Five Star Movement, I venture to predict that Trump in the coming months and years will experience the same kinds of practical challenges and have to make the same kinds of pragmatic concessions as those undertaken by the Italian movement in its time in office.

 

References

Laclau, E. (2007): On Populist Reason. London: Verso Books.

Maeckelbergh, M. (2010): Doing is believing: Prefiguration as strategic practice in the alterglobalization movement. Social Movement Studies, 10(1): 1-20.

Moffitt, B. (2016): The Global Rise of Populism. Stanford: Stanford University Press.

Müller, J.-W. (2016): What Is Populism? Philadelphia: University of Pennsylvania Press.