political economy – Escondido Framework

So, what would a fair society look like? Daniel Chandler’s “Free and Equal”

Daniel Chandler was introduced to John Rawls’ Theory of Justice during his history degree at Cambridge. Although I was encouraged to write a dissertation on Les événements de mai 1968 while studying for the same degree thirty or more years earlier, Theory of Justice, only published in 1971, hadn’t made it into Quentin Skinner’s “History of Political Thought” lectures when I attended them in 1976. Instead, my introduction came at Stanford University’s Graduate School of Business a few years later. By the time that I was involved in the Britain’s short-lived Social Democratic Party in the 1980s, Rawls’ theories, particularly his rationale for a just society being one which offers the most for the least well off in society, provided a philosophical justification those who defected to the SDP from a Labour Party wedded to “Clause 4” socialism.

Chandler and I share a huge respect for Rawls. Chandler takes this to the extent that Rawls’ theories become his lodestone for examining public policy. In the first half of his book, Free and Equal: what would a fair society look like?[1] Chandler performs a valuable service by providing a readable and accessible summary of John Rawls’ famously turgid and impenetrable book, along with an account and rebuttal of Rawls’ critics and of those such as Amartya Sen (a hero and, apparently, mentor to Chandler) who have built on Rawls’ foundations. But the second half of the book, which justifies the sub-title , leaves me imagining that Chandler either wears a leather bracelet imprinted with WWRD (like members of some Christian youth groups wearing one for “What Would Jesus Do”) or lives under a banner like that raised by members of the Occupy Movement at St Pauls Cathedral in 2011.

Chandler works his way through a wide range of public policy issues, trying to apply Rawls’s view of what constitutes social justice by setting out a collection of prescriptions for addressing social and global problems, such as income and wealth distribution, the environment, and distribution of power in the workplace. The attempt is admirable, but disappointing. While conveying the impression that emotionally he is politically on the left, he is resolutely a centrist and not afraid to challenge traditional leftist positions, probably reflecting his academic move from history to politics and philosophy, so less a slave to dogma that some who take on this challenge.

His cv includes Harvard and the LSE, the UK Prime Minister’s Policy Unit, the Resolution Foundation and the Institute for Fiscal Studies, but his prescriptions and supporting accounts lack grounding, are uniformly derivative, and feel embarrassingly like the work I was turning out as a student politician and parliamentary researcher in my late teens and early twenties. Given his background, he can’t be blamed lacking the grounding in the real world that might have informed an approach that would be both more nuanced and insightful. His account of ownership and power in the context of the firm is particularly disappointing and falls into the trap of believing that the shareholders generally hold the power rather than the managers, and the power of different stakeholders depending on the characteristics of the particular markets in which the firm operates, may have more or less power[2]. The consequence is a very simplistic set of prescriptions, with nothing particuarly original.

I briefly found myself bothered by the utopianism that underlies the ambition for the second half of the book, but then cames across his own apology for this and explanation of the need for ambition to make the world a better place, and the value of Rawls’ ideas about justice in thinking about what constitutes “better”. I was then reminded of Lenin, writing in the fifth chapter of What is to be done? Where he cites 19^th Russian nihilist Pisarev

“the rift between dreams and reality causes no harm if only the person dreaming believes seriously in his dream, if he attentively observes life, compares his observations with his castles in the air, and if, generally speaking, he works conscientiously for the achievement of his fantasies. If there is some connection between dreams and life then all is well.”

before then observing

Of this kind of dreaming there is unfortunately too little in our movement.[3]

So, full marks to Chandler for his account of Rawls, and also the aspiration to frame practical solutions in light of Rawls theory, even if he falls well short in his prescriptions and how be presents them.

[1] Chandler, D. (2023). Free and Equal. Penguin UK

[2] Ironically, I read his objection (page 262) to John Lewis Partnership being viewed as a co-operative “because workers do not exercise full control over management” on the very day that the John Lewis staff chairman Dame Sharon White lost a vote of confidence in her past performance from the Partnership Council although she received support for her future leadership going forward.

[3] Wikipedia. (2023). Dmitry Pisarev. [online] Available at: https://en.wikipedia.org/wiki/Dmitry_Pisarev [Accessed 10 May 2023].

What We Owe Each Other, by Minouche Shafik

Minouche Shafik, Director of the London School of Economics

There is much to celebrate in Minouche Shafik’s argument that we need a new social contract[1], not least a title that uses the language of obligation and duty rather than employing the language of rights. This is even if she falls back, in her closing remarks, on answering her question of what it is that we owe to each, that it is “to muster the courage and sense of unity” that the Beveridge Report said was necessary for the “winning” of “freedom and want”. I was looking for more, and shouldn’t be too critical her effort at a rallying cry to round off the book when she has addressed a variety of policy measures, without being unduly prescriptive about their precise form, that would address “our interdependencies, provide minimum protections to all, share some risks collectively and ask everyone to contribute as much as they can for as long as they can….investing in people and building a new system of risk sharing to increase our overall well-being”.

Shafik’s underlying argument is that we need a new social contract to meet the needs and opportunities facing both individual society and global society in the 21^st century, including those of an environment threatened by global warming and the degradation from human activity, of an ageing population, of an inequity between generations, and of the alienation of communities left as others have prospered that as consequence poses a threat the liberal democracy. She is qualified for this task by her personal history which includes an affluent childhood in Egypt that exposed her to third world poverty around her before her family emigrated to the USA, a career largely “in the trenches of policymaking” spanning international institutions and in the central government and central banking in the UK, and finally her current appointment as Director of the London School of Economics in 2017 where she launched a programme of research, ‘Beveridge 2.00’, to rethink the welfare state.

Having spent many years in healthcare and the application of health economics, I felt initially that her chapter on health was skated over too much. But this was before I reflected that the chapters outside my own area of knowledge were throwing me snippets of valuable information and new insights that left me with respect for the ambition within her 189 very readable pages (Thomas Piketty could learn a thing or two from Minouche Shafik!). Plenty of the examples in this book are familiar, such as the marshmallow test, but others cited, such as the evidence of the value of quite modest investment in early years intervention, such as weekly hour-long visits by Jamaican community health workers for 2 years to encourage mothers to interact and play with their children to develop cognitive and personality skills that 20 years later yielded 42% higher earnings than the control group.

Shafik sensibly avoids too many narrowly defined prescriptions, reflecting on data presented in the book that different countries have successful applied different policy solutions (for example in how they fund and organise healthcare) to achieve broadly similar outcomes (even if the one nation in the case of healthcare that doesn’t do this in a coherent way – the United States – ends up spending far more in aggregate, and in terms of public money, than everywhere else only to realise worse outcomes). However, the general thrust of her argument in each area of policy is clear.

Shafik poses interesting questions around the intergenerational social contract. On one hand, younger generations are blessed with material well-being that the old generations could not have dreamt off. On the other hand, as David Willetts documented in the The Pinch[2], the millennials and generation Z have good reason to be aggrieved as they pay for the higher education and the home ownership enjoyed by their parents appears out of reach. Shafik recognises, in the emphasis that she places on investment in education in new social contract and various mechanisms for achieving this that she suggests. There is also the issue of the price that they and future generations will pay in terms of the environmental degradation resulting from the previous generations’ approach to achieving their wellbeing and economic growth. I am surprised at the complexity that she builds in to potential solutions to this when the solution should lie in regulation, a national income calculus that better reflects the value of the natural world that currently calculated GDP or national income, and environmentally based taxes that capture the externalities of industrial and agricultural activity that damages the environment.

The book also gives rise to a set of interesting questions about what this means for businesses. Where do they sit within this narrative? There are important lessons for the people who sit at the heart of businesses, the “controlling minds” in terms what they can do, both in relation to their own workforces, customers and suppliers, in terms of contribution to a new social contract. For the business to thrive, and sustain itself in the long term, the core lesson is that it should be a player, alongside the individual citizen, in such a new social contract. Otherwise, its profitability and in due course its survival will be undermined by the very same pressures the Shafik describes threatening both individuals and liberal democracy.

I have a fear about one element in the approach Shafik takes to the need for a new social contract. This relates to what goes into the “increase in our overall well-being”. Some of the steam that is driving populism is increasing material inequality and the sense that communities are being “left behind”. Some of this populism is a function of identity politics, which may be whipped up by the perception that communities with other identities (often, but not exclusively, framed by other ethnicities or immigrant groups) are posing an economic threat or gain an advantage. But the perception may nothing to do with actual material wellbeing. Indeed, in the case of some of the 52% of the British population voting for Brexit, or the potential majority in Scotland for independence from the UK, this may be a desire to escape from or avoid the “other” despite the prospect that of material disadvantage. Some may be seduced by arguments that “getting back control” will leave them better off materially, but many others take the view that independence from Europe or the UK is more important than the economic benefit of remaining part of the whole. There is, at least at an abstract level, a link between the communitarian spirit in Shafik’s argument for a social contract “that addresses our interdependencies” and the desire to be part of a union, whether of states sharing a continent or Kingdoms sharing a small archipelago at the continent’s north western edge. Those same people who resist the membership of the country they occupy in a union of countries are also likely to be those most resistant to her arguments for a renewed social contract.

[1] Shafik, Minouche (2021). What We Owe Each Other: A New Social Contract. ISBN 978-1847926272.

[2] Willetts, David (2010). The Pinch: How the Baby Boomers Took Their Children’s Future – And Why They Should Give It Back. ISBN 978-1848872318.

George Schultz at 99

Over forty years ago, I attended a four session seminar at the Graduate School of Business at Stanford with George Schultz, then moonlighting as a part-time professor while serving as President of Bechtel Corporation. By that stage in his career he had already been a professor at MIT, dean of the Chicago University Graduate School of Business, and served in the US government as both Secretary of Labor and Secretary of the Treasury. Two years later, the Economist’s leading article gave a warm welcome to his appointment as Ronald Reagan’s second Secretary of State, after the disastrous Alexander Haig when the Cold War showed dangerous signs of overheating. The Economist reeled of a list of the world leaders with whom Schultz had built a close relationship over many years, which contributed the dialling down of threats to world peace during and following Schultz’s term of office.

Among the unexpected benefits of the Covid-19 pandemic has been the efforts of organisations to reach out to audiences with webcasts and webinars. My Stanford connections mean that I am on a mailing list for the Hoover Institution where Schultz remains, at age 99, a senior fellow, and to judge by the unmissable half hour session on Monday evening, a very active one.

I recall being put down in 1980 by Schultz when I made a case, the details of which I have long forgotten, for government intervention of some sort and he responded arguing against the approach I’d suggested and made the case for the use of economic, and specifically market levers. It was striking in this week’s interview how wide is the range of areas in which he now argues for intervention in relation to domestic policy, albeit still using economic levers, and international co-operation to address the range of threats to the future of our society, not least climate change and inequality.

As one of the architects of détente in the 1980s, and more recently an advocate for continued international collaboration (arguing for example that Britain should remain in the European Union), it was no surprise that he contrasted both the current deterioration in the relations between the superpowers and the America First foreign policy of the Trump administration with the post World War 2 settlement. He opened his talk by citing the vision both of those who gathered at Bretton Woods in July 1944 to establish a new international monetary and financial order and of the European leaders who met in Paris in 1951 to surrender sovereignty to establish the Europe Coal and Steel Community and thereby laid the foundations of the European Union.

He presented a depressing outlook for the world, given the scale of the climate change crisis and the apparent lack of reason in the approach of too many world leaders. However, I am not sure that I buy all the arguments that he made. In particular, he argued that the ageing of the populations of North America, Europe, China and the more developed countries of Asian (and given the need for population decline to reduce pressure on the environment and address global warming, the inevitability of an ageing of the global population), create the potential for an end to economic growth and squeeze on living standards, which seemed to take little account of the potential for extending productive lives.

But, however interesting his view of the global outlook and whatever the pleasure for me of this trip down memory lane, what justifies including an account of Schultz’s webinar in this blog? The “takeaway” is his account of the importance of personal relationships and human interaction. It is clear from his anecdotes that his ability to rub along with people made a huge difference to the resolution of problems in the United States’ relationship with the rest of the world both when he was Treasury Secretary and, most critically, Secretary of State. The Economist was right in 1982 to hail the appointment of this massively networked figure. Interpersonal skills are important to the management of the interface between organisations, right up to the size of superpowers. They are also critical to the effectiveness of internal operations. In answer to a question about the dysfunctionality of US government and politics today, he observed that the key figures in both executive and legislative branches all lived in Washington for most of the year, and he would regularly meet over dinner with congressmen from both sides of the aisle, in contrast to the situation today. A glimpse perhaps of the Dark Matter that makes organisations work?

My recollection from our encounters in 1980 is of a solidly build man in late middle age (at least from the perspective of a 24 year old) with a gravelly baritone, a contrast with the smaller man of today with a voice pitched an octave higher. There is only so much we can do to hold back physical ageing, but it is inspiring to see that there is every reason for remaining engaged and committed to public debate. Schultz’s recipe for a long and active life was revealed in answer to the final question addressed to him: “Don’t stop working on the things that interest you.” There is no sign that George Schultz intends stopping soon.

Markets, State and People by Diane Coyle

Rousseau observed that “Man is born free but everywhere is in chains”. Many people in business, politics and media talk about markets in a similar way, as though “free markets” are the natural state and desirable order and any intervention by an agency of the state or collective popular action is represents an undesirable fettering of enterprise.

Economists since Adam Smith have recognised that markets can fail and may need to be subject to intervention. Even figures as inspiring to simplistic supporters of free markets as Milton Friedman recognise that there are proper roles for the state where markets fail.

Diane Coyle starts in much the same place as other economists who look at limits of markets and the place of government intervention in markets. She starts with conventional analysis of market failures, listing seven instances of failure in the conditions required for free markets to be efficient. She returns these seven types of failure throughout her examination of the relationship between markets, the state and people, and description of the appropriateness of state intervention or collective action to address.

In cataloguing the failures and the responses to them, Coyle assists the reader, from the economics or politics undergraduate or MBA student getting their first exposure to welfare economics and public policy, through to the general reader seeking a better understanding of how the world works. She draws on and explains clearly the work of people like Coase, Ostrom and Thaler who have broadened and deepened our understanding of how people both cause and respond to the seven types of failure she describes. The book is furthered enriched, and the lessons consequently rendered more accessible, by a peppering of case studies illustrating the core arguments.

Coyle also tackles government failure, highlighting the shortcomings in bureaucracies (or among public servants) and as a consequence of political failures (or failures of politicians) that result in the application of the wrong policies to address the market failures. The text seems to peter out in the final chapter where she addresses what she appears to hope is the solution to the problems of government failure, which is the application of evidence to economic policy. In this chapter that she reveals the limitations of her experience as a career academic and regulator, with a rather slight addressing of the use of statistics and cost benefit analysis. This doesn’t detract from the power (or readability) of the previous nine chapters, but point to the opportunity for someone else to write something of similar tone and quality to fill the gap on how to test public policy initiatives to address market failure.

1993 Tomorrow’s Company paper and latest paper for Cranfield Renewing Capitalism project

Two papers setting out some of the key ideas in the framework have been added to the site. A paper written for Tomorrow’s Company, when in its initial phase under the sponsorship of the Royal Society of Arts, can be found on the Origins page. A recent paper written for the Cranfield Institute’s Renewing Capitalism initiative can be found on the home page.