Publication on the Brandt Report in an Age of Populism

Together with Prof. Solveig Richter, University of Leipzig, and Raphael Robiatti, Brandt School, we have edited a publication supported by the Bundeskanzler-Willy-Brandt-Stiftung. We use the 40th anniversary of the so-called Brandt Report as a moment to look at the legacy of the report on policymaking.

I also wrote a short blog post here on some of the conclusions. Apart from the substantive questions about how well the Brandt Report has aged over time, I find it fascinating to observe how little, still, we know about the effects of populism on policymaking. The literature seems much stronger on identifying a populist rhetorical style.

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Why is there no Meso-Economics?

This is not a blogpost to bash mainstream economics, but rather to understand why in teaching and, to some extent, in research mainstream economics does systematically filter out important aspects of reality. Economics is reductionist or parsimonious, if you prefer this term, and bases itself on important dichotomies. One such dichotomy is micro- vs. macroeconomics.

One reason why political science often appears less of a science. But this is an observational bias.

Of course, a lot of the best research straddles the two, looking for microfoundations in macroeconomics or for how macroeconomics shapes individual decision-making. In many subfields of economics – industrial economics, labour market economics etc. – meso-level phenomena such as firms, trade unions or market structures play a huge role. At the fringes, economists also work on non-standard collective actors such as non-profit organizations. Yet, all in all, mesoeconomics is a messy field, and is not one which would merit an introductory textbook of note. There is no Mankiw ‘Principles of Mesoeconomics’ for one.

There have been occasional attempts to start a field of mesoeconomics. See here or here, for instance. Nonetheless, the main fields are micro and macro. As a political economist this has always irritated me. During my days as a student of economics in Germany, I learned that economics is about the economy in general, and business administration (BWL) is about enterprises and companies. It could well happen that you heard two, totally contradictory messages on the very same day. For instance, in macroeconomics I learned about the assumption of consumer sovereignty and how this is a necessary ingredient to standard welfare economics, only to move class rooms and listen to all these lectures about marketing and organization in business administration that all aim at, let’s face it, fooling customers to buy stuff they don’t need and fooling workers to trade extrinsic motivation (aka money) for intrinsic motivation (aka self-exploitation).

This is why I think the omission of mesoeconomics is fundamental in several ways. For one, it drives wedges where none should exist. Micro and macro need meso as the grey zone. Omitting the meso-level, also helps school building and useless tribal discussions about which main field is prior to the other (with microeconomics often winning because of the reductionist bias in economics as a field).

More importantly, the neglect of mesoeconomics underplays the role of an important, but often very messy host of issues on the meso-level. More focus on the meso level reveals that the ideal-type market competition rarely happens because firms and other types of collective actors differ tremendously in size, market power, access to politics to name a few. More focus on the meso level reveals that macro questions sometimes boil down to what very large companies in a country do or want. The Swedish model of welfare state capitalism? For decades it was synonymous to the ideas of one Swedish family of industrialists (I am exaggerating of course, but only slightly) Internet commerce? The Big 5 tech companies run up to 75 percent of all their respective businesses.

In terms of economic policymaking, this means, among other things, that we need to take as a rule non-competitive market or at least semi-competitive markets as standard, rather than thinking that the standard is market competition. Empirically, allowing for the meso-level means that very often the law of large numbers does not necessarily apply. Conceptually allowing for the meso-level means that trying to find nomothetic laws reaches its limits. Of course, we can frame issues of limited competition and few economic agents in terms of game theory. But at the extreme, few firms might depend on few individuals, individuals that may or may not behave rational. Political science does try to erase the individual as much as possible, putting ‘variables’ instead of ‘names’ in the lingo of textbooks on social science research methodology. But it would be foolish to say that individuals do not matter when you look at influential philosophers (e.g. Marx) or influential politicians (e.g. Trump).

Therefore, the root of economists’ disregard for the meso-level seems to be the fuzzy, imprecise nature of the meso-level, a level at the vagaries of history and chance. It goes against the notion of economics as an exact science. And this fear, ironically enough, is quite irrational in my view.

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ColMex Lecture on Origins of Welfare State

I gave a lecture to students of the Colegio de Mexico @CEIColmex. The slides are in Spanish. Here they are (EuropaContemporanea) for those who are interested. Comments welcome.

Bismarck

Vergeblich versucht der gepanzerte Kanzler, den”Sozialist Jack” in den Kasten niederzudrŸcken. Karikatur aus Punch, 28.9.1878 (Aus K. Walther “Bismarck in der Karikatur”)

(Image Source: GHDI)

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Academic Writing Workshop in Myanmar

Luicy Pedroza (twitter @Luicy_Pedroza) and I (@achkem) held two academic writing workshops for students and staff in Myanmar. The slides are available here (Colloquium_Myanmar_2020), in case other people are interested.

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Talk on the Future of Work in Middle Income Countries

I attach some preliminary findings of my ‘field research’  on the future of work in middle income countries and its policy implications. They are still very broad and somewhat unspecific, but there are some interesting differences between Malaysia and Indonesia worth teasing out a bit more.

See my slides here: The Future of Work

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Info about ongoing research

Find attached my slides for a presentation on my ongoing research projects. This information is primarily for the current @BrandtSchool students, but also to anyone who would like to reach out to me.

AidCourse_Research_Portfolio

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Symposium on the Politics of Labour Market Inequality

Silja Häusermann, David Rueda and I launched a symposium debate in Political Science Research Methods on the Politics of Labour Market Inequality. We discuss the relevance of research on labour market stratification, segmentation, insider-outsider theories and dualization for broader discussions in political science: mobilization, voting behaviour and public policy making.

Please find the introduction to the symposium here. We have contributions from Marius Busemeyer and myself on conceptual stretching in the literature on dualization (link), Georg Picot and Paul Marx (link) on the conceptualization of insiders vs. outsiders, and Tim Vlandas on the empirical veracity of different measurements (link). Silja Häusermann (link) and Hanna Schwander (link)  discuss the political implications of labour market inequality, whereas Philipp Rehm looks at the broader picture of welfare state change.

 

 

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New Paper with @reniracorinne on CEO Pay and the Role of Redistributive Institutions

The wonderful @reniracorinne and I have written an article in Socio-Economic Review. Find a short (policy) summary here. Here is the link to the article.

 

If governments want to target the inflation of CEO Pay, they should also address pay inequality among managers.

Introduction

Since the 1980s, there have been numerous scandals about the excessive growth of top executive compensation (TEC). Enron is just a very prominent example in recent years. As a reaction, governments have experimented with regulating TEC in several ways: The Clinton administration put a cap on TEC tax deductibility; both the Obama administration and the EU imposed a pay cap for firms in the need of a bailout after the Global Financial Crisis. Some countries have even tried to go further. For instance, there was a referendum in Switzerland to limit CEO pay to workers by a ratio of 12:1 (in most countries the actual ratio is much higher). The referendum failed.

These initiatives have become salient at a time of general increases in top income shares and growing overall inequality. Prominent economists have argued that TEC inflation significantly contributes to the growing income inequality by driving up the income at the top (Sabadish and Mishel 2012; Atkinson, Piketty, and Saez 2011; Piketty 2014). This can ultimately damage the legitimacy of democracies (Przeworski 2016).

However, governments’ attempts to regulate or even control TEC lead to very different outcomes across countries. While in some countries (e.g. X) the rise of TEC has been relatively moderate, in others (e.g. the U.S. or X?) TEC galloped away. The academic literature has targeted these cross-country differences and has given reasons why some governments are more successful in halting excessive wage growth for top managers: cooperation with strong trade unions, high tax rates on corporate and personal income, shareholder protection laws etc.

The importance of redistributive institutions

We argue, however, that one important aspect of such attempts is often overlooked: how do such attempts deal with the heterogeneity among managers and the income inequality among CEOs? We do know that there are huge differences between managers belonging, say, to the top 10, 1 and 0.1 percent respectively. However, the literature disagrees to which extent this inequality is due to inequalities between managers, between firms, or entire sectors. As an example for the latter, finance and real estate are often mentioned as those which have seen the highest growth in TEC. Therefore, there is a clear case of heterogeneity and inequality among managers, but not all government initiatives reflect this.

Just looking at the four main institutions mentioned (unions, corporate income tax, personal income tax and shareholder protection). Only two of these are robust to the problem at which level the heterogeneity arises (individual, firm or sector), and only these tackle inequality directly, because they are (potentially) redistributive: first, cooperation with unions, because, on average, (centralized) unions tend to care about wage inequality within firms and among individuals ; and second, personal income taxation, because this happens at the individual level (regardless to which firm or sector a manager belongs) and managers face a progressive tax rate. Neither (most) corporate taxation nor shareholder protection exhibits these features. They target the average manager, no matter who this is and in what type of firm or sector he or she works.

This leads to a simple prediction. While all four types of interventions might dampen average TEC, only personal income taxation and the role of unions also matters for inequality among managers. To show this we look at the effect of all four types for firms of different sizes, in terms of market valuation. This follows a large literature on the growing disparities between small and large cap firms

(Edmans, Gabaix, and Jenter 2017). If our argument about the power of redistributive institutions is correct, we should not only look at the direct (aggregate) impact of institutions on TEC, but also at the gap between very large firms (in market value) and the rest.

 

We test this idea with a new dataset on TEC for X countries over X years. The Figure demonstrates our main findings. All four interventions affect the average level of TEC, but corporate income taxation and shareholder protection have a stronger (more visible) effect on the  average level of TEC (as seen by the range on the y axis). However, only personal income taxation and the strength of unions affect small and large cap firms differently. In both cases, the redistributive effect sets in, i.e. very big firms see more of a depression in TEC. In other words, only these two types of interventions target the relative differences among managers.

 

 

graph_blogpost_renira_article

 

 

 

 

 

 

 

 

 

 

 

 

Consequences

Inequality is back on the political agenda, and TEC is an important driving force of overall inequality. Governments differ very much in their capacity (and political will) to influence TEC. We argue that redistributive institutions still play a significant role, but somewhat underappreciated role in moderating TEC in 21st century capitalism. The strength of trade unions and personal income tax rate in particular, matter precisely because they address the individual heterogeneity in pay among managers (as well as firms and sectors) directly. They are particularly relevant for “large-cap” firms. Other means, such as corporate income taxation and or regulation, do this much less. If inequality among managers is a key driving force for a general rise in TEC as diPrete et al. (2010) argue, initiatives that strengthen such redistributive institutions are an important and robust strategy for governments to respond to rising inequality.

 

References

Atkinson, Anthony B, Thomas Piketty, and Emmanuel Saez. 2011. “Top Incomes in the Long Run of History.” Journal of Economic Literature 49: 3-71. https://doi.org/10.1257/jel.49.1.3.

DiPrete, Thomas A., Gregory M. Eirich, and Matthew Pittinsky. 2010. “Compensation Benchmarking, Leapfrogs, and the Surge in Executive Pay.” American Journal of Sociology 115: 1671-1712. https://doi.org/10.1086/652297.

Edmans, Alex, Xavier Gabaix, and Dirk Jenter. 2017. “Executive Compensation: A Survey of Theory and Evidence.” SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2992287.

Hassel, Anke. 2009. “Policies and Politics in Social Pacts in Europe.” European Journal of Industrial Relations 15: 7-26. https://doi.org/10.1177/0959680108100163.

Oswald, Andrew J. 1985. “The Economic Theory of Trade Unions: An Introductory Survey.” The Scandinavian Journal of Economics 87: 160. https://doi.org/10.2307/3439820.

Piketty, Thomas. 2014. “Capital in the Twenty-First Century.” 685.

Przeworski, Adam. 2016. “Democracy: A Never-Ending Quest.” Annu. Rev. Polit. Sci 19: 1-12. https://doi.org/10.1146/annurev-polisci-021113-122919.

Sabadish, Natalie, and Lawrence Mishel. 2012. “CEO pay and the top 1%: How executive compensation and financial-sector pay have fueled income inequality | Economic Policy Institute.”

Shin, Taekjin. 2014. “Explaining Pay Disparities between Top Executives and Nonexecutive Employees: A Relative Bargaining Power Approach.” Social Forces 92 (4): 1339-1372. https://doi.org/10.1093/sf/sou004. https://academic.oup.com/sf/article-pdf/92/4/1339/17164390/sou004.pdf.

—. 2016. “Fair Play or Power Play? Pay Equity, Managerial Power and Compensation Adjustment for CEOs.” Jorunal of Management 42 (2): 419-448.

Streeck, Woflgang. 2001. The Transformation of Corporate Organization in Europe: An Overview. Cologne.

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New comment on #dualization and stratification in labour markets out

Marius Busemeyer and I wrote a comment published in Political Science Research Methods (link) on the scholarly debates about dualization and insider-outsider problems in labour markets. We make the point that the discussion sometimes conflates the microlevel (How has labour market stratification changed in recent years and to what effect?) and the macrolevel (How do changes in regulation, social benefits and taxation benefit or hurt different segments in the labour market differently?). We argue that it is still to be seen whether contemporary process are best characterised by dualization or (partial) liberalization. This difference is crucial for the future evolution of welfare states.

https://www.cambridge.org/core/journals/political-science-research-and-methods/article/dualization-stratification-liberalization-or-what-an-attempt-to-clarify-the-conceptual-underpinnings-of-the-dualization-debate/C20383B2A41D6C45EA3D32234174256D?utm_source=Twitter&utm_medium=Social&utm_campaign=ram&hootPostID=8ff7413058879ab85f9e2bbd7d5bcba3

It’s part of a symposium on the politics of new labour divides coming out soon…

 

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Postdoc on politics and policies of generations and populations in Denmark

2-year postdoc position in politics and policies of generations and populations at CPOP-SAMF

The SDU’s interdisciplinary Centre on Population Dynamics (CPOP) and the Department of Political Science and Public Management invites applications for a 2-year postdoc position in politics and policies of generations and populations as soon as possible.

The successful applicant will be affiliated with the Societies and Demographic Change research section of the Danish Centre for Welfare Studies at the Department of Political Science and Public Management, SDU. Furthermore, the new employee will be affiliated with the Business and Social Sciences unit of the Centre for Population Dynamics (CPOP-SAMF). We encourage applications from early-stage researchers with a strong methodological background who do innovative and theory-driven research in political sociology, political economy, economic sociology or political demography, on key aspects of generations and populations in aging societies. Relevant research topics may include intergenerational resource transfers and human capital investments, intergenerational solidarity and equity, intergenerational social norms and social comparisons, intergenerational mobility, intergenerational public policy conflict, and age group relevant politics, policies and feedback processes across the lifecycle (ranging from education to pensions), as well as implications for policy reform and policy innovation.

 

Candidates are expected to:

  • Be curious and willing to actively engage in interdisciplinary research activities. Centre for Population Dynamics includes scholars from demography, health, biology, humanities, as well as the social sciences.
  • Present a 2-year research agenda that clearly links to the CPOP and CPOP-SAMF research agendas.
  • Document a strong research outcome and publishing experience with international peer-reviewed journals/presses.
  • Document the ability to engage in professional networks.

It is important to us that applicants have good interpersonal skills and are dedicated to taking part in the everyday academic and social environment at the department in general and the CPOP activities. Such engagement can be documented by, for example, past engagement in social and professional activities.

The department believes in fostering a stimulating and inspiring environment for both faculty members and students. The department’s ambition is therefore to recruit, develop, and retain talented scholars committed to both academic excellence and departmental development. Furthermore, the department aims to employ staff that reflect the diversity of society and, thus, welcomes applications from all qualified candidates regardless of personal background.

For further information, please contact PI Professor Pieter Vanhuysse: vanhuysse@sam.sdu.dk or Head of Centre, Klaus Petersen, klaus.petersen@sdu.dk.

Application, salary, etc.
Appointment to the position requires a PhD or equivalent and will be in accordance with the salary agreement between the Ministry of Finance and the Danish Confederation of Professional Associations.

An application must include:

  • Detailed CV
  • A research agenda (max 3 pages) for the next 2 years that describes:
    • the potential to advance the field (both empirically and theoretically)
    • relationships to the aim and goals of the CPOP/CPOP-SAMF
    • planned national and international collaborations
    • the potential of obtaining external funding
  • Certificates/Diplomas (Master and PhD degree)
  • Complete list of publications, indicating which publications are most relevant for the position
  • Up to 3 of the most relevant publications. Please upload a pdf for each publication. NOTE: If publications have been co-authored, co-author statements must be a part of this pdf and must include information like in this example. The statement is just for your inspiration
  • Please attach the PhD dissertation as a publication, if such exists.

All non-Danish documents must be translated into English.

Applications that are incomplete with regard to the above requirements may be rejected without any substantive evaluation.

Assessment of applications will be done under existing Appointment Order for universities. Applications will be assessed by an academic assessment committee that determines whether applicants are qualified. The committee may request additional information, and if so, it is the responsibility of the applicant to provide the necessary

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