“In such a world of conflict, victims, and executioners, it is the job of thinking people, not to be on the side of the executioners.” (Albert Camus)

The Least We Can Do For Syria

APR 17, 2015

LONDON – Over the past four years, Syria has been the scene of terrible suffering and savagery. But the recent assault on the Yarmouk Palestinian refugee camp in Damascus by Daesh (Islamic State) fighters has shocked and appalled even the most hardened observers.

The capture of the camp leaves 18,000 refugees at risk of slaughter, unable to access food, water, and vital services. Conditions there – according to Christopher Gunness, a spokesman for the United Nations Relief and Works Agency for Palestine Refugees in the Near East – are “beyond inhumane.” The attack reminds us once again that Syria’s agony can be ended only by concerted international action.

When protests against President Bashar al-Assad’s authoritarian regime first broke out in 2011, few could have imagined the catastrophe that Syria would suffer. The war has claimed more than 200,000 lives and devastated Syria’s social and economic fabric.

The conflict has led to atrocities on all sides, including mass executions, kidnapping, torture, the use of chemical weapons, and the deployment of barrel bombs. Some 12 million people have fled their homes, and many have left the country altogether, placing a heavy burden on neighboring states like Lebanon and Jordan. More than three million children are no longer in school.

The international community has been unable – and, to some extent, unwilling – to stop the war or end Syria’s suffering. Former UN Secretary General Kofi Annan and I have had first-hand experience of the crisis. We both tried to bring the combatants to the negotiating table and end the killing. And we both failed.

In the meantime, the world took far too long to wake up to the global danger posed by Daesh. It will take more than the ongoing bombing campaign to end the group’s atrocities in Syria and Iraq. A comprehensive resolution of the conflict is urgently needed. But this will be possible only if the main regional players – Iran, Jordan, Qatar, Saudi Arabia, and Turkey – work with the international community to generate the political will to act. Unfortunately, there are few signs that such cooperation will happen anytime soon.

The responsibility for our collective failure and inaction is not confined to international diplomats and policymakers; it is shared by all of us. And yet too many people, confronted by such vast suffering, have become numb and apathetic. It is vital that, no matter how grim or upsetting the situation in Syria becomes, we do not tune it out or simply seek to turn the page.

Nowhere is this more apparent than in the terrible spectacle of thousands of Syrian refugees, crammed into rickety vessels, attempting to cross the Mediterranean Sea. In the past year, some 4,000 men, women, and children have lost their lives in this perilous crossing. But this has not deterred thousands of others from risking the same journey and putting their lives in the hands of human traffickers and criminal gangs.

Incredibly, the European Union’s response to the drowning deaths in the Mediterranean has been to cut the budget for the naval response unit charged with monitoring refugee crossings and rescuing shipwreck survivors. This not only flies in the face of morality; it is also counterproductive.

The current focus on border security has resulted in inadequate, uncoordinated, and poorly designed policies that force migrants to resort to illegal and dangerous channels. And yet national governments throughout the EU, it seems, are too afraid of – or too beholden to – anti-immigrant sentiment among their electorates to show common humanity to refugees.

In a conflict as bitter, protracted, and complex as the war in Syria, it is all too easy to become overwhelmed by despair. Some international broadcasters have even found that their audience share drops when they delve into the conflict. It can be difficult for ordinary citizens to feel hopeful when governments and international institutions have been unable to stop the war and refuse to protect refugees.

The Algerian-born French author Albert Camus wrote, “In such a world of conflict, victims, and executioners, it is the job of thinking people, not to be on the side of the executioners.” It is in this spirit that I call on people around the world to pressure their governments to implement policies that protect and shelter Syrian war refugees. Taking care of those displaced by the conflict is the least we can do. For the world’s sake, the Syrian people must not be forgotten.

Lakhdar Brahimi, a former foreign minister of Algeria and United Nations and Arab League Special Envoy to Syria

¿Por qué nuestros Gobiernos no nos hacen felices?

Effective Altruism

APR 20, 2015

PRINCETON – Can humans really be motivated by altruism? My new book, The Most Good You Can Do, discusses the emerging new movement called Effective Altruism, and, in doing interviews about the book, I am surprised by how often that question is asked.

Why should we doubt that some people act altruistically, at least some of the time? In evolutionary terms, we can easily understand altruism toward kin and others who can reciprocate our help. It seems plausible that once our ability to reason and reflect has developed sufficiently enough to enable us to understand that strangers can suffer and enjoy life just as we can, then at least some of us would act altruistically toward strangers, too.

The polling organization Gallup asked people in 135 countries whether they had, in the last month, donated money to a charity, volunteered their time to an organization, or helped a stranger. Gallup’s results, which form the basis of the World Giving Index 2014, indicate that approximately 2.3 billion people, a third of the world’s population, perform at least one altruistic act per month.

More objective evidence of altruism buttresses these findings. In many countries, the supply of blood for medical purposes relies on voluntary, anonymous donations. Worldwide, more than 11 million people have put their names on donor registries for bone marrow, signifying their willingness to donate their marrow to a stranger. A small but growing number of people have gone further still, donating a kidney to a stranger. There were 177 altruistic donations by living donors in the United States in 2013 and 118 in the United Kingdom in the year to April 2014.

Then there are those who donate to charity. In the US alone, individuals gave $240 billion to charity in 2013. Foundations and corporations topped this up to a total of $335 billion, or about 2% of gross national income.

The US is often said to be more charitable than other countries; but, in terms of the proportion of the population donating money, Myanmar, Malta, Ireland, the UK, Canada, the Netherlands, and Iceland all do better. In Myanmar, 91% of the people surveyed had given money in the past month (the corresponding figure for the US is 68%), indicating the strong hold of the Theravada Buddhist tradition of donating to support monks and nuns. Myanmar also had the highest percentage of people volunteering time (51%).

The US did, however, have the highest ranking for “helping a stranger.” That, together with a high ranking for volunteering time, led it to tie with Myanmar as the most generous nation in the world.

Admittedly, not all of this giving is altruistic. New York’s Lincoln Center announced last month that the billionaire entertainment industry mogul David Geffen has donated $100 million toward the renovation of its concert facility, Avery Fisher Hall, on the condition that it is renamed David Geffen Hall.

That gift seems motivated more by a desire for fame than a desire to do good. After all, as Geffen presumably knew, the family of Avery Fisher had to be compensated with a payment of $15 million in order to agree to the renaming. In any case, in a world with a billion people living in extreme poverty, it would not be difficult for an altruist to appreciate that there are many ways of doing more good than renovating a concert hall for well-off music lovers.

At the opposite end of the giving spectrum, psychologists who study giving behavior have suggested that people who give small sums of money to a large number of charities may be motivated less by the desire to help others than by the warm glow they get from making a donation. By contrast, other donors give larger sums, usually to only a handful of charities chosen on the basis of some knowledge about what the charity is doing. They want to have a positive impact on the world. Their gifts may also make their lives better, but this is not what motivates them.

The Effective Altruism movement consists of people who give in the latter way, combining the head and the heart. Their aim is to do the most good they can with the resources that they are willing to set aside for that purpose.

Those resources may include a tenth, a quarter, or even half of their income. Their altruism may include their time and talents, and influence their choice of career. To achieve their aims, they use reason and evidence to ensure that whatever resources they devote to doing good will be as effective as possible.

Several studies show that people who are generous are typically happier and more satisfied with their lives than those who do not give. And other studies show that giving leads to activity in the reward centers of the brain (the areas of the brain that are also stimulated by tasty food and sex).

But this does not mean that these donors are not altruistic. Their direct motive is to help others, and their giving makes them happier only as a consequence of the fact that it does help others. If we had more such people, we would have more giving, and that is what we want. To define “altruism” so narrowly that the term can be applied only when giving is contrary to a person’s overall interest would miss the point that the best situation to bring about is one in which promoting the interests of others harmonizes with promoting one’s own.

Peter Singer is Professor of Bioethics at Princeton University and Laureate Professor at the University of Melbourne.

Marshall/Morgenthau ó Paz, Libertad y Desarrollo hasta la Singularidad Global

A Global Marshall Plan  

APR 20, 2015 

ROME – Despite ongoing efforts to catalyze global development cooperation, there have been significant obstacles to progress in recent years. Fortunately, with major international meetings set for the second half of 2015, world leaders have an important opportunity to overcome them.

Such a turnaround has happened before. At the turn of the century, international negotiations on economic development had also come to a grinding halt. The Seattle ministerial of the World Trade Organization ended without decision, and after two decades of the Washington Consensus, developing countries were frustrated at the US-led international financial institutions. Negotiations for the inaugural United Nations Financing for Development (FfD) conference in Monterrey, Mexico, seemed to be headed nowhere.

Then, on September 11, 2001, the United States was hit with major terrorist attacks – a tragic development that somehow catalyzed progress. World leaders agreed to begin the Doha Development Round to ensure that trade negotiations would serve developing countries’ development aspirations. And the 2002 Monterrey FfD conference produced major breakthroughs on foreign and domestic investment, foreign debt, international cooperation, trade, and systemic governance issues.

Of course, tragedy is not needed to kick-start progress. This year’s major global meetings – the Conference on Financing for Development in July, the meeting at the United Nations to adopt Sustainable Development Goals in September, and the UN Climate Change Conference in Paris in December – should be sufficient. And the efforts that have gone into preparing for these meetings suggest that there is a will to move forward.

But the right program is key. The world needs a well-designed and far-reaching strategy to stimulate industrialization, modeled after the European Recovery Program – the American initiative that enabled Europe to rebuild after World War II. The Marshall Plan, as it is better known, entailed a massive infusion of US aid to support national development efforts in Europe, and is still viewed by many Europeans as America’s finest hour.

The Marshall Plan’s impact was felt far beyond Europe’s borders, developing over the following decade into what is probably the most successful economic-development assistance project in human history. Similar policies were introduced in Northeast Asia following the establishment of the People’s Republic of China and the Korean War.

Of course, there was a political motivation behind the Marshall Plan’s expansion. By creating a cordon sanitaire of wealthy countries from Western Europe to Northeast Asia, the US hoped to contain the spread of communism at the start of the Cold War. Developing countries that did not serve the same political ends were left out.

At its core, however, the Marshall Plan was an economic strategy – and a sound one at that. Crucially, it represented a complete reversal of its predecessor, the Morgenthau Plan, which focused on de-industrialization – with poor results. The plan’s aim – articulated by Treasury Secretary Henry Morgenthau, Jr., in his 1945 book Germany is Our Problem – was to convert Germany into a “principally agricultural and pastoral” country, in order to prevent its involvement in any new wars.

By late 1946, however, economic hardship and unemployment in Germany spurred former US President Herbert Hoover to visit the country on a fact-finding mission. Hoover’s third report of March 18, 1947, called the notion that Germany could be reduced to a pastoral state an “illusion,” which could not be achieved without exterminating or moving 25,000,000 people out of the country.

The only alternative was re-industrialization. Less than three months later, Secretary of State George Marshall made his landmark speech at Harvard University announcing the policy reversal. Germany and the rest of Europe were to be re-industrialized, he stated, including through heavy-handed state interventions, such as high duties, quotas, and import prohibitions. Free trade would be possible only after reconstruction, when European countries could compete in international markets.

Marshall made three other important points in his short speech.

First, in noting the role that the breakdown of trade between urban and rural areas played in Germany’s economic slowdown, he recalled a centuries-old European economic insight: all wealthy countries have cities with a manufacturing sector. “The remedy,” Marshall explained, “lies in…restoring the confidence of the European people,” so that “the manufacturer and the farmer” would be “able and willing to exchange their products for currencies, the continuing value of which is not open to question.”

Second, Marshall argued that participatory institutions emerge from economic progress, not the other way around – the opposite of today’s conventional wisdom. As he put it, the policy’s “purpose should be the revival of a working economy in the world, so as to permit .” the emergence of political and social conditions in which free institutions can exist.

Third, Marshall emphasized that aid should be comprehensive and strategic, in order to foster real progress and development. “Such assistance,” he declared, “must not be on a piecemeal basis as various crises develop. Any assistance that this government may render in the future should provide a cure, rather than a mere palliative.”

Marshall’s vision offers important lessons for world leaders seeking to accelerate development today, beginning with the need to reverse the effects of the Washington Consensus on developing and transition economies – effects that resemble those of the Morgenthau Plan. Some countries – including large economies like China and India, which have long protected domestic industry – have been in a better position to benefit from economic globalization. Others have experienced a decline in economic growth and real per capita income, as their industry and agricultural capacity have fallen, especially over the last two decades of the last century.

It is time to increase poor economies’ productive capacity and purchasing power, as occurred in Europe in the decade after Marshall’s speech. Marshall’s insight that such shared economic development is the only way to create a lasting peace remains as true as ever.

Erik S. Reinert is the author of How Rich Countries Got Rich…and Why Poor Countries Stay Poor. 

Jomo Kwame Sundaram is Coordinator for Economic and Social Development at the Food and Agriculture Organization of the United Nations.

En este Mundo traidor, nada es verdad ni mentira, todo depende del color del cristal con que se mira... en especial en gerrman-economía (Ley Campoamor-Schäuble)

Wolfgang Schäuble on German Priorities and Eurozone Myths

APRIL 15, 2015

 

BERLIN — The annual spring meetings of the International Monetary Fund and the World Bank begin on Friday in Washington. I’m looking forward to them, even if the discussion in recent years has seemed, to some commentators, a bit too well-rehearsed to provoke much discussion or thought outside of the usual comfort zones.

The fact that the immediate sting of the global financial crisis has faded in much of the world has probably contributed to this complacency. Unfortunately, however, the world economy is not yet out of the woods. It still faces very concrete challenges. We are as badly as ever in need of a common understanding of what needs to be done.

The financial crisis broke out seven years ago and led many countries into an economic and debt crisis. A pervasive set of myths — that the European response to the crisis has been ineffective at best, or even counterproductive — is simply not accurate. There is strong evidence that Europe is indeed on the right track in addressing the impact, and, most importantly, the causes of the crisis. Let me run through some of these myths.

First, it has often been said that German insistence on fiscal austerity meant that Germany, the largest economy in the European Union, has “punched below its weight” — and thereby pushed the eurozone more deeply into crisis — by not stimulating more demand. This misses the point. As in medicine, to prescribe the right treatment it is essential to have the correct diagnosis.

My diagnosis of the crisis in Europe is that it was first and foremost a crisis of confidence, rooted in structural shortcomings. Investors started to realize that the member countries of the eurozone were not as economically competitive or financially reliable as the uniform bond yields of the pre-crisis years had suggested. These investors began to treat the bonds of certain countries with much more caution, causing interest rates for those bonds to rise. The cure is targeted reforms to rebuild trust — in member states’ finances, in their economies and in the architecture of the European Union. Simply spending more public money would not have done the trick — nor can it now.

To this end, Germany has consistently advocated an approach of structural reforms and reducing public debt without throttling growth. This is not blind “austerity.” It is about setting a reliable framework for private-sector activity, preparing aging societies for the future and improving the quality of public budgets.

In Germany, this approach has shown tangible success: The economic recovery since 2009 has been broad-based, with domestic demand as the main driver of growth. Investment — both public and private — is increasing. We are speeding up debt reduction, in line with the I.M.F.’s recent call for “symmetric stabilization” (reducing deficits in good times, to offset deficits in bad times).

More importantly, many European countries are reaping the rewards of reform and consolidation efforts. Countries like Ireland and Spain, which put far-reaching reforms into effect when they hit financial trouble a few years ago, now boast some of the highest growth rates in Europe.

A second myth is the absurd claim by some commentators that Germany — being a creditor nation— was actually profiting from the crisis. I don’t see how any member country can benefit from a European crisis. It is true that the German government now enjoys historically low borrowing costs. But so do almost all other eurozone members. Unconventional monetary policies pursued by the independent European Central Bank seem to have fulfilled their part there. Low interest rates help all borrowers — but they come at ever-increasing costs to savers and pension funds. We should work hard to overcome this extraordinary situation and find our way back to a well-functioning market economy, in which interest rates serve to allocate savings to the most profitable investments.

This leads to my third point: For many vocal commentators the answer to the crisis in Europe has been ever-greater liquidity and ever-lower interest rates. Now that we have both, we are finding that these policy tools are no panacea, but create problems of their own. More and more experts on both sides of the Atlantic warn of dangerous bubbles in asset prices and risks to financial stability from ever-increasing leverage (financing by borrowing). And it is clear that the debt burden in many countries cannot be solved by incentives to take on even more debt.

On the fiscal side, we need to prepare government budgets for an eventual normalization of monetary policy and capital markets. The ongoing debate over “tapering” in the United States — the end of the extraordinary period of “quantitative easing” by the Federal Reserve to stimulate economic growth by purchasing huge quantities of bonds — shows how difficult it is to withdraw a stimulus once governments and markets get used to it.

The European Central Bank has warned many times that monetary policy cannot substitute for fiscal and structural reforms in member countries. Christine Lagarde, the managing director of the I.M.F., has also called for further structural reforms. Such reforms include, for example, more flexible labor markets; lowering barriers to competition in services; more robust tax collection; and similar measures. I fully share this view. Monetary policy can only buy time. Our job is to make sure that this time is well used to put finances in order and economies on sustainable growth paths.

The priorities for Germany, as the current president of the Group of 7 nations, are modernization and regulatory improvements. Stimulus — both in fiscal and monetary policy — is not part of the plan. When my fellow finance ministers and the central bank governors of the G-7 countries gather in Dresden at the end of next month we will have an opportunity to discuss these questions in depth, joined — for the first time in the G-7’s history — by some of the world’s leading economists. I am confident that we can reach some common ground in Washington in advance of that meeting. 

Wolfgang Schäuble is the finance minister of Germany

... Así es si así os parece (Luigi Pirandello, parábola en tres actos)

Fondos de Inversión Pública v/Privada: un maniqueismo liberal

The Creative State

APR 16, 2015 

 

LONDON – The conventional view in mainstream economics today is that governments have little capacity to spark innovation. The state should play as limited a role in the economy as possible, the thinking goes, intervening only in cases of “market failure.” This is far from the truth.

In fact, governments can and do play a critical role in spurring innovation – actively creating new markets, instead of just fixing them. To be sure, advocates of a limited economic role for government believe that market failure justifies some funding of infrastructure and basic science. But such limited intervention can hardly explain the billions of public-sector dollars that have flowed toward downstream applied research, even providing early-stage financing for companies. Indeed, in some of the world’s most famous innovation hubs, the state has played a key “entrepreneurial” role, envisioning and financing the creation of entire new fields, from information technology to biotech, nanotech, and green tech.

In Silicon Valley, for example, the government has acted as a strategic investor through a decentralized network of public institutions: The Defense Advanced Research Projects Agency, NASA, the Small Business Innovation Research program (SBIR), and the National Science Foundation.

The sums involved can be staggering, and not just in IT; large amounts of funding have also been channeled to energy and life sciences. In 2011, for instance, the US National Institutes of Health (NIH) invested $31 billion in biomedical research. Marcia Angell, a professor at Harvard Medical School, has shown that this financing played a crucial role in the development of some of the most revolutionary new drugs in recent decades. Similarly, for some of the most innovative American companies, financing from the SBIR has proved to be more important than private venture capital.

Examples outside the US include Israel, where the public venture-capital fund Yozma has provided early-stage funding to some of the country’s most dynamic companies, and Finland, where Sitra, the public innovation fund, supplied early financing for Nokia. In China, the state-owned development bank is offering billions of dollars in loans to some of the country’s most innovative companies, including Huawei and Yingli Solar.

These types of public investments are critical in creating and shaping new markets. Indeed, government investment played a central role in developing nearly all of the technologies that make the iPhone a smart phone: the Internet, GPS, touchscreens, and the advances in voice recognition underlying Siri. Similarly, in many countries, it is the public sector that is leading the way in making green technology possible.

Recognizing the importance of government investment in promoting innovation and growth implies the need to rethink the conventional wisdom about state intervention. Instead of focusing on picking individual technologies or firms, public organizations should act like investors, betting on a diversified “portfolio” of choices.

Like any other investor, the state will not always succeed. In fact, failure is more likely, because government agencies often invest in the areas of highest uncertainty, where private capital is reluctant to enter. This means that public organizations must be capable of taking chances and learning from trial and error.

If failure is an unavoidable part of the innovation game, and if government is crucial for innovation, society must be more tolerant of “government failure.” But the reality is that when government fails, there is public outcry – and silence when it succeeds.

For example, the bankruptcy of the US solar energy firm Solyndra, which received a $500 million government-guaranteed loan, triggered partisan protests. Yet few have paused to consider that the government provided nearly the same amount to Tesla to help it develop the Tesla S car, a product that is considered an archetype of Silicon Valley innovation.

What, then, might make the public more accepting of government failure?

Private venture capitalists cover their losses from failed investments with their profits from those that succeed; but government programs are rarely set up to generate significant returns. While some argue that the government’s return comes through taxes, the current tax system is not working, owing not only to loopholes, but also to rate reductions. When NASA was founded, the top marginal tax rate was over 90%. And capital gains tax has fallen by more than 50% since the 1980s.

In order to build support for public investment in higher-risk innovation, perhaps taxpayers should receive a more direct return, by channeling profits into a public innovation fund to finance the next wave of technologies. When investments are in upstream basic research, the spillover effect across industries and sectors is sometimes enough of a social reward. But other cases might require creating alternative incentives.

For example, some of the profits from the government’s investment in Tesla could have been recovered through shares (or royalties), and used to cover the losses from its investment in Solyndra. Repayment of public loans to business could be made contingent on income, as student loans often are. And the prices of drugs that are developed largely with NIH funding could be capped, so that the taxpayer does not pay twice.

One thing is clear: the current approach suffers from serious shortcomings, largely because it socializes the risks and privatizes the rewards. This is hurting not only future innovation opportunities, but also the government’s ability to communicate its role to the public. Acknowledging the role that the state has played – and should continue to play – in shaping innovation enables us to begin debating the most important question: What are the new visionary public investments needed to drive future economic growth? 

Mariana Mazzucato, Professor of the Economics of Innovation at the Science Policy Research Unit of the University of Sussex.

Las Nuevas Tecnologías, en beneficio de todos

From Welfare State to Innovation State

JAN 14, 2015

 

PRINCETON – A specter is haunting the world economy – the specter of job-killing technology. How this challenge is met will determine the fate of the world’s market economies and democratic polities, in much the same way that Europe’s response to the rise of the socialist movement during the late nineteenth and early twentieth centuries shaped the course of subsequent history.

When the new industrial working class began to organize, governments defused the threat of revolution from below that Karl Marx had prophesied by expanding political and social rights, regulating markets, erecting a welfare state that provided extensive transfers and social insurance, and smoothing the ups and downs of the macroeconomy. In effect, they reinvented capitalism to make it more inclusive and to give workers a stake in the system.

Today’s technological revolutions call for a similarly comprehensive reinvention. The potential benefits of discoveries and new applications in robotics, biotechnology, digital technologies and other areas are all around us and easy to see. Indeed, many believe that the world economy may be on the cusp of another explosion in new technologies.

The trouble is that the bulk of these new technologies are labor-saving. They entail the replacement of low- and medium-skilled workers with machines operated by a much smaller number of highly skilled workers.

To be sure, some low-skill tasks cannot be easily automated. Janitors, to cite a common example, cannot be replaced by robots – at least not yet. But few jobs are really protected from technological innovation. Consider, for example, that there will be less human-generated trash – and thus less demand for janitors – as the workplace is digitized.

A world in which robots and machines do the work of humans need not be a world of high unemployment. But it is certainly a world in which the lion’s share of productivity gains accrues to the owners of the new technologies and the machines that embody them. The bulk of the workforce is condemned either to joblessness or low wages.

Indeed, something like this has been happening in the developed countries for at least four decades. Skill and capital-intensive technologies are the leading culprit behind the rise in inequality since the late 1970s. By all indications, this trend is likely to continue, producing historically unprecedented levels of inequality and the threat of widespread social and political conflict.

It doesn’t have to be this way. With some creative thinking and institutional engineering, we can save capitalism from itself – once again.

The key is to recognize that disruptive new technologies produce large social gains and private losses simultaneously. These gains and losses can be reconfigured in a manner that benefits everyone. Just as with the earlier reinvention of capitalism, the state must play a large role.

Consider how new technologies develop. Each potential innovator faces a large upside, but also a high degree of risk. If the innovation is successful, its pioneer reaps a large gain, as does society at large. But if it fails, the innovator is out of luck. Among all the new ideas that are pursued, only a few eventually become commercially successful.

These risks are especially high at the dawn of a new innovation age. Achieving the socially desirable level of innovative effort then requires either foolhardy entrepreneurs – who are willing to take high risks – or a sufficient supply of risk capital.

Financial markets in the advanced economies provide risk capital through different sets of arrangements – venture funds, public trading of shares, private equity, etc. But there is no reason why the state should not be playing this role on an even larger scale, enabling not only greater amounts of technological innovation but also channeling the benefits directly to society at large.

As Mariana Mazzucato has pointed out, the state already plays a significant role in funding new technologies. The Internet and many of the key technologies used in the iPhone have been spillovers of government subsidized R&D programs and US Department of Defense projects. But typically the government acquires no stake in the commercialization of such successful technologies, leaving the profits entirely to private investors.

Imagine that a government established a number of professionally managed public venture funds, which would take equity stakes in a large cross-section of new technologies, raising the necessary funds by issuing bonds in financial markets. These funds would operate on market principles and have to provide periodic accounting to political authorities (especially when their overall rate of return falls below a specified threshold), but would be otherwise autonomous.

Designing the right institutions for public venture capital can be difficult. But central banks offer a model of how such funds might operate independently of day-to-day political pressure. Society, through its agent – the government – would then end up as co-owner of the new generation of technologies and machines.

The public venture funds’ share of profits from the commercialization of new technologies would be returned to ordinary citizens in the form of a “social innovation” dividend – an income stream that would supplement workers’ earnings from the labor market. It would also allow working hours to be reduced – finally approaching Marx’s dream of a society in which technological progress enables individuals to “hunt in the morning, fish in the afternoon, rear cattle in the evening, criticize after dinner.”

The welfare state was the innovation that democratized – and thereby stabilized – capitalism in the twentieth century. The twenty-first century requires an analogous shift to the “innovation state.” The welfare state’s Achilles’ heel was that it required a high level of taxation without stimulating a compensating investment in innovative capacity. An innovation state, established along the lines sketched above, would reconcile equity with the incentives that such investment requires.

Dani Rodrik is Professor of Social Science at the Institute for Advanced Study, Princeton, New Jersey.

EUROPA... lo que queda por hacer (bien)

Europe’s Poisoned Chalice of Growth

APR 14, 2015

CAMBRIDGE – After a double-dip recession and an extended period of stagnation, the eurozone is finally seeing green shoots of recovery. Consumer confidence is rising. Retail sales and new car registrations are up. The European Commission foresees 1.3% growth this year, which is not bad by European standards. But it could be very bad for European reform.

It is not hard to see why growth has picked up. Most obviously, the European Central Bank announced an ambitious program of asset purchases – quantitative easing (QE)– in late January. That prospect rapidly drove down the euro’s exchange rate, enhancing the international competitiveness of European goods.

But the euro’s depreciation is too recent to have made much difference yet. Historical evidence, not to mention Japan’s experience with a falling yen, suggests that it takes several quarters, or even years, before the positive impact of currency depreciation on net exports is felt.

So other factors must be at work. One is that spending and growth are now under less pressure from fiscal consolidation. The structural primary budget balance, the International Monetary Fund’s preferred measure of “fiscal thrust,” tightened by an additional 1-1.5% of GDP each year from 2010 to 2012, after which it remained broadly stable. The subsequent two years of neutral fiscal policy has made a positive difference for economic performance.

And, however regrettable the uneven application of the EU’s fiscal rules, the European Commission’s recent decision to give France more time to reduce its budget deficit to 3% of GDP is welcome, coming as it did against the backdrop of a weak economy.

Another factor behind the upturn is the meaningful progress that a number of European countries, such as Spain, have made on structural reform. Labor-market regulation has been loosened, and unit labor costs have come down. This, too, is showing up as further improvement in Europe’s competitiveness.

A third driver of recovery is the fact that banks and financial markets are now better insulated from the turmoil in Greece. French and German banks have been able to sell their holdings of Greek government bonds, largely to the ECB, which has acted as bond purchaser of last resort. The ECB has also promised to support other countries’ bond markets in the event of a Greek accident. Hence Europe’s recovery is less at risk of being derailed by instability in Athens.

Fourth and finally, even dead cats bounce.

Economic growth heals many wounds. It strengthens banks’ balance sheets by reducing the volume of non-performing loans. It narrows government budget deficits by increasing tax revenues and limiting welfare spending. By raising the denominator of the debt/GDP ratio, it enhances confidence in debt sustainability. And it produces these benefits automatically, without officials having to do anything more.

Unfortunately for Europe, growth also reduces the perceived urgency of action where action is urgently needed – for example, Greece. With the rest of Europe growing, other governments, believing themselves to be in a stronger economic position, are less inclined to compromise with Greece. Everyone understands that compromise is preferable to the collapse of negotiations, disorderly default, and Greece’s forced exit from the eurozone. But the more confident the rest of Europe becomes of the sustainability of its recovery, the more it adopts a hard line – and the more likely a disorderly denouement becomes.

Similarly, the more that recovery and sustained growth strengthen banks’ balance sheets, the less urgency policymakers feel to address structural shortcomings, such as the implicit guarantees enjoyed by state banks and municipal savings banks in Germany, and the problems of family-controlled banks like Banco Espirito Santo in Portugal.

And even 2% growth will not render Europe’s triple-digit debt/GDP ratios sustainable. Europe still needs debt restructuring, though the continent’s leaders refuse to acknowledge this. Economic recovery merely enables them to delay the inevitable day of reckoning.

Finally, there are the more ambitious reforms – fiscal union and political union – that must complement monetary union if Europe is to avoid a similar crisis in the future. If there is one lesson to be learned from Europe’s recent travails, it is that monetary union without fiscal and political union will not work. Yet, given intense opposition to further fiscal and political integration, progress, if it is to occur, will entail difficult and divisive negotiations. So any European growth that occurs without these measures will create an incentive to put them off.

The problem, quite simply, is that many of the underlying conditions that produced the eurozone crisis remain unaddressed. If Europe now grows without making the hard decisions needed to address them, those decisions become correspondingly less likely to be made.

In developing countries, it is said that good times are bad times for economic reform. Welcome to developing Europe. 

Barry Eichengreen is Professor of Economics at the University of California, Berkeley