The transatlantic slave trade lasted 340 years and results in the forced deportation of over 12 million Africans. The first slave ship left Africa for the Americas in 1525 and the last officially recorded vessel departed in 1866. The topic is uncomfortable for many and the facts are deeply disturbing. The abhorrent treatment of slaves by their slaveowners, traders, and captors represents one of the darkest periods of human history. Yet, while many of us know slavery was an awful practise – which Britain played a key role in both legitimising, institutionalising, and physically carrying out. I argue that many of us should know a lot more about how the systematic enslavement of Africans has affected the contemporary development of the continent. Specifically, how and through what channels did slavery have a long-term impact on Africa? This question is important since only by recognising that the impact of slavery didn’t end in 1866, can we begin the process of understanding the calls for reparations, the roots of poverty in Africa in general, and our moral duty to collectively support the struggle for economic, social, and political freedom for all Africans. 

International calls for reparations for the transatlantic slave trade have gathered momentum in the past year. Speaking in Kigali, Rwanda in June 2023, King Charles (then Prince Charles) admitted the “time has come” to confront the legacy of slavery. In a visit to the UK, the Prime Minister of Barbados, Mia Mottley, reiterated her countries demands for £3.9 trillion in reparations owed to Barbados for damages caused by the slave trade.  And, last month in New York, Ghana’s President, Ghanaian President, John Dramani Mahama, rallied African and Caribbean nations to support a motion he plans to submit to the United Nations (UN) to declare the Transatlantic Slave Trade a “crime against humanity”. This follows the former president, Nana Addo Akufo-Addo, call that “It is time that Africa, whose sons and daughters had their freedoms controlled and were sold into slavery, received reparations” – which he also made whilst delivering a speech at the United Nations in New York in 2023.

How did Mia Mottley reach this figure of £3.9 trillion? Quantifying the damages owed by the slave trading countries is extremely difficult. In fact, reaching an exact figure is impossible since no amount of money can right the wrongs of slavery. Nonetheless, attaching a figure provides a useful benchmark to begin a discussion of how much damage slavery inflicted. The Brattle Group, a global consulting firm, was commissioned to do exactly that. Using the best available data and making a range of assumptions, they came to a total harm estimate of between $100 trillion and $130 trillion, within which the UK is responsible for $26 trillion. Many will bulk at this gigantic number. For perspective, the total output of the UK economy last year was $3.3 trillion. However, considering that the slave trade occurred over a period of centuries, affecting millions of people, the number is actually not so large. For example, when compared to the cumulative GDP of the UK since 1800, the amount owed by the UK  is 17.3% of that output. I would say that however you splice $26 trillion it will never look small and a key challenge for the reparations movement is how to navigate that. However, note that data used for cumulative GDP is from 1800 only (data availability), but slavery occurred for centuries before that so the 17.3% is a sizeable underestimate. Moreover, the estimated harm of $26 trillion, according the report, is based on very conservative assumptions. For example, they fixed the interest rate used to calculate the present value of the damages at 2.5% – a significantly lower rate than the actual rate of interest on money throughout the period. Using a more accurate interest rate would increase the figure substantially beyond $26 trillion. 

The economic analysis used to calculate the damages owed is one thing. Equally important is economic evidence that sheds light on how, and through what specific channels, the slave trade has affected contemporary African underdevelopment. I think this is critical since calling for reparations is unlikely to succeed on the basis of moral duty alone. There also needs to be strong statistical evidence that the slave trade has had deep and long-term impacts on Africa today, which although sounds like it would be obvious, through the process of understanding it will illuminate and strengthen the argument for reparations.

Trusting your neighbour

The direct effect of the slave trade on population size is also a huge factor in explaining the development of West Africa. The official estimate of the number of slaves taken from Africa is around 12 million. This is very likely to be an underestimate, as it doesn’t count individuals who lost their lives during the slave raids or during the long marches to the coast. The loss of such a large number of young, fit, and healthy adults had disastrous consequences for the overall population.  For instance, one of the leading academic estimates finds that, by 1850, Africa’s population was half of what it would have been had the slave trades not occurred. The under-population of this region throughout the 19^th century had far reaching consequences on the transformation of agriculture and industry. These remained backward, characterised by small-scale subsistence farming and hand-crafted manufacturing. The industrial and agricultural revolutions underway in Europe were simply not possible with such a low population. In particular, low labour specialisation and low demand fails to create the conditions for this to occur.

In summary, these are just a few examples of the long-run impact of slavery on economic development. They highlight how factors holding back progress are deep and entrenched in society. In the words of William Darity, a respected researcher, slavery was the “original sin” that began the divergence of rich and poor. Until that is recognised and appreciated by the global community, it will be long-time before African societies are treated with the respect they deserve. As Britain in particular tries to re-establish its place in the world, it must first apologise and then take serious steps to establish a dialogue on reparations. This could open the path to mutually beneficial partnerships with African countries, bringing growth and development to the region, and finally moving on from the legacy of the international slave trade.

 

“You see the problem those British and French made, and then left for us to solve?” Salifu would ask my brothers and me. “What happens when your house is divided?”

Excerpt from My First Coup D’Etat, an auto-biographical account of post-independence Ghana by John Mahama, former President of Ghana.

What happens when your house is divided? Such a conundrum faced members of the Ewe tribe, whose homeland straddles the contemporary national borders of Ghana and Togo. Journeying to work in the morning, families belonging to the Ewe walk out of their front door into Ghana, but, when they return home in the evening, relax in their backyards in Togo. A confusing reality, which leads many people to question exactly who they are, and where they belong. Across Africa it’s estimated that a third of historical homelands belong to two or more present day countries; with 30-40% of Africans belonging to these partitioned groups. Africa also has the largest share of landlocked countries, fencing in millions of people from the benefits of international trade, and exposing them to the vicissitudes and bad policies of neighbouring countries. 

Landlockedness and ethnolinguitistic fractionalisation are a consequence of artificial border design following the Scramble for Africa (1885-1914), a period of European discovery and partitioning of African societies and land. The historical legacy of the Scramble can be seen today: strong statistical evidence shows that contemporary conflict, weak governance, and low development can be attributed to the arbitrary boundaries drawn by the European powers (for an excellent review of the latest evidence see this paper).

A vast area of Africa, plagued by the historical consequences of European division and colonial administration, is the Sahel. The Sahel is a semi-arid stretch of land, enclosed to the north by the Sahara Desert, and to the south by the savannahs. The name ‘Sahel’ is an Arabic word for coast, referring to the boundaries of the region between the Atlantic coast of West Africa and the Red Sea in the east. Several states belong to the Sahel, including Burkina Faso, Chad, Mali, Nigeria, and Sudan.

Sahelian states are amongst the poorest and least developed countries in the world. For example, the UN estimates 10 million children are in need of humanitarian assistance in the Sahel.  Figure 1 compares the Sahel to other countries in the world, categorised by their Human Development Index (HDI). HDI is a measure which takes into account health, education, and income to assess the overall development of a country. Despite noticeable improvements in the past 30 years, life expectancy in the Sahel remains 20 years less than very high HDI countries and 4 years less than low HDI countries. Maternal mortality (i.e number of maternal deaths per 100k live births) is very high in the Sahel – approximately 3.5 times that of medium HDI countries, and 50 times that of very high HDI countries. Educational attainment is also extremely weak, the average years spent in school being only three. This issue is particular acute for young women – in some regions of the Sahel up to 80% of young women were married as children, and 95% of child brides don’t receive any education.

The Sahel’s poor development reflects the regions persistent struggles against several overlapping crises. For example, the climate crisis is aggravating the already naturally extreme climate conditions in the Sahel: drought and desertification being two of the most common threats. Security is also a major concern in the area. For instance, the Global Terrorism Index 2023 finds that the Sahel region is now the centre of global terrorist activity, accounting for more deaths due to terrorism in 2022 than South Asia, the Middle East, and North Africa combined. A 2,000% increase since 2011. As the military juntas now in control of Mali, Burkina Faso, Niger, and other Sahelian countries focus on consolidating power in their capitals, state authority in the countryside has been diminished further, leaving power vacuums for terrorist groups already active in the area.

As mentioned above, the imposition of state boundaries along mostly unknown territory, with little regard to local conditions, was particularly damaging to the Sahel region. The Sahel has been a home to nomadic peoples for centuries, a way of life that necessitates free movement across a wide area. Borders created states of various shapes and sizes, containing several ethnic groups, languages, and cultural practises. Further, colonial institutions favoured different groups through indirect rule, pitting them against each other, and creating historical grievances between peoples. The historical legacy of these events exacerbates the proximate causes of crisis, such as climate change and terrorism, by limiting the power of the state. 

A case in point is the Tuareg of northern Mali.  A group who once saw themselves as the ‘masters of the desert’, found themselves a tiny minority within the new borders of Mali, ruled by the predominantly black population in the south. Consequently, the state making process in Mali has been extremely fractured because of the disconnect between the people and the state authority. This socioeconomic and political exclusion then manifests into violence.

Issues with internal security and underdevelopment in the Sahel are unique due their state and non-state aspects. As such, a UN report from 2016 characterises the region as a regional security complex.  A regional security complex is a collection of states whose interconnectedness in relation to security necessitates the unit of analysis to be at the region level, as opposed to along state lines. This classification speaks to the arbitrary nature of the state boundaries in the Sahel created through the Scramble for Africa. Many of the underlying security and developmental challenges have their root cause in the structural configuration of the Sahel itself. Hence, any solutions will need to be built on trans-national policies, which recognise the unique qualities of life in the Sahel.

The West shouldn’t and cannot ignore the problems in the Sahel. So much of the ongoing crises are rooted in Western interventions, not least the Scramble for Africa, without even mentioning the transatlantic slave trade (which I will write about in a follow up post). Yet, the world’s focus is not on Africa. France has left West Africa following the Niger coup, the UK has massively diminished its role in terms of ODA (Official Development Assistance; aid), and America is spread thin responding to wars in Ukraine and Gaza, as well as precariously balancing relations with China. However, ignoring the Sahel threatens the continued spread of terrorism and will inflame the migrant crisis in Europe – both important issues for  voters. Regardless of that, 10 million children in need of humanitarian assistance should be a strong enough case to grab the attention of the EU, America, and the rest of the world. Of course, African leaders and peoples will need to take the charge on this issue, but without external support, delivered with an appreciation of the unique context regarding the Sahel, the challenges will be insurmountable for decades to come.

The UK has a fairly good education system by international standards. We rank eighth out of forty-one similar countries for educational attainment, and we have a secondary school graduation rate above the OECD average (OECD,PISA). However, the divide in outcomes between private and state school pupils has grown rapidly in the last decade, and the difference in funding between state school pupils and private school pupils has reached record levels. Pressures on education resources- exacerbated by the Covid-19 pandemic – alongside falling teacher numbers, due to stress and burnout, are a fundamental risk to social mobility and meritocracy in the UK. 

For context, education in the UK is highly stratified; the three main systems are state, grammar, and private. The vast majority of students are enrolled in publicly funded state schools. A few local authorities also have a grammar school system; grammar schools aim to promote social mobility through a selective admission process at aged eleven. However, the evidence that selective education improves social mobility is very weak, and the system is hardly meritocratic when wealthy households can afford to pay professional tutors for the entrance exams. Thirdly, we have the private school system – open to high-income households which can afford the average annual fees of £14,940 for a non-boarding day school.  Private boardings schools (confusingly named public schools ) include famous schools like Eton, where average fees increase to a staggering £35,289. When you consider the average household disposable income in the UK is £32,300, very few people can afford these institutions (IFS, ONS). 

The gap in student outcomes across several measures between state school and private school pupils is huge and growing. Evidence from the Institute for Fiscal Studies (IFS), which published a report last year on private schools and inequality, suggests that not only do privately educated pupils do better at school (when compared with state school pupils of similar cognitive ability, family background, and income), but they also receive an earnings premium well into their careers.  The IFS finds the earnings premium, by the age of 42, can be as much as 35% for men, and 21% for women. A significant proportion of this can be explained by occupational choice. Thus, why is it that less state school pupils enter high-earning industries like law and finance? Is it due to a lack of social capital, less parental pressure, or low confidence and knowledge about these sectors? The answers to these questions are not clear, but future research should investigate what is determining those choices.  Analysis of the proportion of privately educated students in elite occupations highlights the large disparity in outcomes. For example, 51% of Junior Ministers, 42% of media columnists, and 59% of Permanent Secretaries – the highest position in the Civil Service- went to a private school (I can’t find data on banking, finance, or law but the pattern is clear). This compares to 18% of pupils between the age of 16-19 who attend private school, or 6.4% of all pupils.

Clearly, attending private school offers a range of potential advantages – not least in terms of the educational resources. However, research also suggests that private schools deepen an individuals social capital. The impact of social capital on student outcomes is very hard to measure, but it likely explains a non-trivial amount of the private earnings premium when combined with a better resourced education, and higher selection into top-earning professional industries.

One may argue that private schools offer several social benefits. For instance, 56% of private schools are registered as charities and therefore should legally be providing a ‘public benefit’. Charity status can be met through providing means-tested bursaries, partnerships with local state schools, and encouraging charitable work among pupils. The evidence of a wider social benefit to private schools is not conclusive, but it most likely won’t be enough to counter-balance the social costs of the private and state resource divide. Moreover, bursaries are rarely enough to cover the expenses of many private schools, and partnerships with state schools have nose-dived since the pandemic.

Nonetheless, a radical policy to abolish private education has about an equal chance of passing through parliament as Matt Hancock does of hosting a prime-time Saturday night television show (although I wouldn’t put it past him). But, I believe significant reform which narrows the outcome gap between state and private school pupils would deliver substantial social benefits. As I mentioned in the opening paragraph, it’s not as if the UK doesn’t have a good education system; I would argue that we need to fund this system as best we can and ensure it’s fit for standards, regardless of the impact on private schools. 

The benefits of a better educated and more aspirational workforce are enormous not just for individual wellbeing but also economic growth. Economists are often in disagreement about the factors explaining economic growth, but few argue that human capital (skills, education, training) are not fundamental drivers of long-run productivity (which has been dismal for over a decade in the UK). Moreover, low productivity growth, coupled with the worst (excluding the US) income inequality in the western world, has substantially harmed the UK’s ability to weather the shocks of Covid-19 and the war in Ukraine. A better funded and larger state education system which produces a well-trained workforce with more skills, would not only help reduce long-run inequality, but also drive long-run productivity. 

“The average fee for a boarding school is £32,000, a VAT charge of 20% on top of that is £6,400. The state spends an average of £6,125 per pupil. Effectively this means the UK taxpayer is subsiding the education of the richest families children to go to elite boarding schools for the same amount as their own children receive in education funding.”

A low-hanging fruit policy proposed by Labour is to end the charitable status given to private schools, and in turn end their exemption from VAT and business tax rates. This isn’t just a leftist view. This exact idea was proposed previously by Micheal Gove, Tory education secretary for four years between 2010-14, who wrote in 2017 about the unfairness of the VAT exemption on private schools. A simple back of the envelope calculation reveals the clear injustice of the VAT exemption. The average fee for a boarding school is £32,000, a VAT charge of 20% on top of that is £6,400. The state spends an average of £6,125 per pupil. Effectively this means the UK taxpayer is subsiding the education of the richest families to go to elite boarding schools for the same amount as their own children receive in education funding.

Last month, within the Labour Party, the motion to set up a new committee to investigate private schools’ “charitable status” failed by 303 to 197. Critics argue the impact of the policy is unclear, and by increasing the fees of private schools it will hurt aspirational families and force them to take their children out of private education. Some families would indeed be priced out of the private market, and others would need to reconsider the benefits of private education at the higher fees. However, the exact reduction in the size of the private sector depends on how many families would decide to switch to state school provision. Given fees have been increasing steadily for years, it seems unlikely many families will be perturbed by an increase in price. Furthermore, conservative arguments about free-markets are strangely absent in this domain – why exactly should governments intervene to influence the market price of education? You tell me.  A larger state sector accommodating a more diverse range of students would also create a range of positive peer-effects between pupils, and be accompanied with an increase in tax revenue of £1.7bn a year to spend on teachers and classroom resources. In comparison to the school budget of £57.3bn this isn’t huge, but its an improvement with essentially zero-cost on 94% of children in the country. 

Overall, the private and state school divide has a huge impact on the outcomes of pupils. This divide has been growing since 2010, has been made worse by the pandemic, but it can also be helped by effective policy choices – in particular scrapping the charity status of private schools. This isn’t a question of whether you believe private education is morally wrong or right, nor whether you think people should have the choice. Politicians on the right will focus on the freedom to choose, however, your ability to choose depends on your income, and it’s simply unfair to provide tax-breaks which slightly reduce the economic burden for rich families (again so much for the free-market eh?). Moreover, an unequal society- with poor social mobility -harms everyones incomes because it creates a less dynamic and prosperous economy. Hence, a more equal education system would feed itself into a better economy, where if you choose to pay for education out-of-pocket then fine, but if you don’t, then you can at least know the state system is adequately funded. 

At the group stages of the Qatar World Cup draw to a close, the growing excitement of the football has dissipated some of the earlier anger at the event being hosted in a country with multiple human rights abuses and a very poor record on migrant worker treatment. Rightly these issues deserve serious attention, but it’s not obvious what the ethics are of who is able to host world sporting events and who isn’t. Nonetheless, if places like Qatar are going to host sporting occasions in the future it’s only right to scrutinise and understand the nature of the problems within those countries, just as we should our own. Hence, I hope to shed some light on the makeup of economic inequality in Qatar – which is inherently related to the conditions and pay of migrant workers.

We all know Qatar is very rich; according to World Bank estimates of GDP per capita (PPP 2017$) it ranks 4th in the world. Qatar also got very rich very quickly. Since 1970 its GDP has increased by a factor of 19. The UK’s GDP has increased by a factor of 3 in the same period. This explosion of wealth has resulted in the Qatar we see today; the photos above clearly show the monumental transformation of the country during this time. 

Where the economy has grown, so has the number the number of people. In 1995 the population was a little over 400,000 – most of these being Qatari born natives. In 2021, it’s approaching 3 million. However, this isn’t due to a sudden interest in procreation among the Qatari youth; in fact almost all of the population increase is because of inward migration. This reached a peak in 2007 when a staggering 1 million entered the country in a single year – equivalent to 83% of the population at the time. Migrants now make up an estimated four-fifths of the population. But, how can a country maintain a sense of identity for its native citizens with such a huge influx of foreigners? The answer is by ruthlessly excluding migrants from the same rights as native born Qataris: segregating them socially, politically, and economically. This is a win-win for the Qatari state. It can build a new, modern and beautiful country using the oil revenue now flowing into its coffers without a supply of labor, and at the same time maintain its identity and culture – one which they wish to keep distinct from the mostly Indian, Bangladeshi and Pakistani migrant workers. 

At the heart of this policy is the kafala system. This is a system which gives the employers of migrant workers effective control of the legal status of the worker. In practise this often results in workers facing threat of imprisonment or deportation if they leave their job. It also means they must request permission to change jobs – often requiring an intense navigation through bureaucratic systems not known to the worker. According to Amnesty International the kafala system is “inherently abusive” and, in cases, amounts to a form of modern slavery. 

All in all, this has resulted in Qatar becoming not only one of the most unequal countries in the world today, but also historically one of the most unequal societies in recorded history. Figure 3 shows the top 10% of earners in Qatar earn 32 times as much as the bottom 50%. This is double the income inequality of the Unites States, which has double the income inequality of Europe. And I’m just talking about income. Notoriously wealth is hard to measure, and no doubt the Qatari elite have assets which are not accurately recorded, but from data available it also ranks extremely high on wealth inequality. 

Qatar, even when placed in an historical context, holds its own as a deeply unequal society. For instance, included in its company are the former slave and colonial societies of Haiti in 1780, and Algeria in 1930. Figure 4 (7.3 in Piketty’s book) below shows how the Middle East ranks against these societies (Qatar has is shown to be slightly above the Middle East average in Figure 1). Haiti in 1780 was the archetypal slave colony and one of the most unequal economically in history: the top 10% earned 80% of the income. In terms of income distribution, Qatar is closer to Haiti in 1780 than Europe in 2018. It sits somewhere in the middle between the height of colonial European high-society in 1910 and apartheid South Africa in 1950. Let that sink in.

I don’t intend to equate the plight of migrants in Qatar and slaves in the New World directly. For one, the proponents of the global slave trade, a conglomeration of Portuguese, American, Dutch, Danish-Norwegians, French, and British state sponsored merchants, who forcibly removed peoples from their homes and transported them across oceans against their will. Migrant workers in Qatar have come to the country largely by themselves, are paid wages, and do not face working environment compatible to a plantation. Nonetheless, with reports of wages as low as 45p an hour, migrant labour can hardly be considered fair, or even legal. Moreover, when you begin to think of a new country suddenly endowed or discovered with a large amount of natural resources, but not much labour to employ, it does lend itself to historical comparisons. The Southern Unites States comes to mind. 

In short, I hope to have shown how unequal Qatar is and place that in an historical context using the great data available in Thomas Piketty’s Capital and Ideology. The migrant workers in Qatar didn’t just come to build a few World Cup stadiums like the Qatar government would like you to believe (Figure 2 actually shows the net inflow of migrants has actually been declining since Qatar won the bid). Migrant workers have been used to build absolutely everything you see in Qatar, from the airports, metros and shopping malls to the skyscrapers and hotels – none of which they own or even receive a minute slice of the income which they generate. In return they have been denied the rights and privileges of the standard of living which they made possible. In the World Cup contruction many have also lost their lives – 6500 according to Guardian research or 400-500 which was flippantly admitted by a Qatari official on Piers Morgans’s YouTube Chanel. 

Of course, the economic inequality of workers and residents of Qatar is only one perspective to take. Not least the absence of rights for LGBTQ+ people also speaks to the deep social inequalities in the country. These are all issues worth highlighting. Perhaps the legacy of this World Cup will be the power of the international spotlight and its influence on future reform. Although somehow, I think not. 

 

Trickledown economics is back with a vengeance this week, as Kwasi Kwarteng, the new Etonian and Harvard educated Chancellor, announced his so called “mini” budget today. The labor front-bench derided his bonfire of tax cuts as a return to trickledown, quoting President Biden, who tweeted earlier this week:

Kwarteng’s response in the commons: “For too long in this country, we have indulged in a fight over redistribution. Now, we need to focus on growth”. Nobody in economic policy is against growth. However, achieving growth by cutting the top rate of income tax and scrapping the cap on bankers bonuses – now that is a lot more contentious. 

Trickledown, at its core, is entirely based on the idea of incentives. In the new governments view, taxes reduce incentives for wealth creation because they reduce the amount of money available in the pockets of people who are the most innovative, hard working, and industrious. By lowering the burden of tax on these people, the hope is that they will spur new spending, investment, and generally start working harder and better. As a consequence, the riding tide will lift all boats and we will all be better off through more and better paid jobs.  In fact, Truss and her allies will hope that the tide will rise so much that these tax cuts will pay for themselves through growth.  

In theory, it’s not entirely implausible that by removing burdensome taxes the economy can be kickstarted. However, trickledown isn’t really about tax reform, or reducing taxes where they are most harmful to growth. It’s a pure and simple handout to the already extremely wealthy and rich members of societies with the blind hope it will somehow benefit the rest. Kwasi may loath policy makers focus on redistribution, but he’s certainly not afraid to redistribute to the very top of society. 

Trickledown is not a new idea, but fortunately that means it’s been tried before, and people have analysed whether it works. So what does the evidence say? An IMF paper published in 2015 found that increasing the top 20%’s share of income was actually bad for growth in the medium term. This is driven by the fact that, among other things, a widening gap between the rich and poor creates political instability, lowers investment in education, and increases the probability of financial crisis. 

In another paper, published by the LSE International Inequalities Institute in December 2020, researchers find that tax cuts on the rich have no effect on economic growth.  Their main finding is that, overall cutting taxes on the rich has no effect on growth and only leads to more inequality.

Overall, our analysis finds strong evidence that cutting taxes on the rich increases income inequality but has no effect on growth or unemployment. 

The Economic Consequences of Major Tax Cuts for the Rich, LSE 2020

In another paper, Picketty and co authors run a series of models and also find no connection between the rate of tax on top earners and the growth of GDP. A really revealing graph from that paper is shown below. This is for the United States but the story is very similar for the UK.

It shows you how from 1950 to around 1970 the real incomes of the worst off in society grew exponentially quickly. This is the what economic historians call the “golden age of growth”. By many accounts, this was the largest sustained increase in living standard in history. What is telling is the red-line. During this period of miraculous growth the top marginal tax rate (i.e the tax rate paid on an additional dollar earned by the highest incomes) never fell below roughly 70%. Today it was announced that the 45% rate on earnings over £150,000 will be scrapped and the highest rate will be now 40% for incomes over £50,000.  It appears the he chancellor, who by the way hold a PhD in Economic History from Cambridge, will do well to actually study the history of growth. During the time where the economy grew the fastest the top rate of tax was way above what it is today. 

The government is taking a huge gamble on a policy that is proven to not work. The only affect this will have is to drive up inequality and increase division in an already divided society. The fate of the UK economy appears to be on a knife edge, or as Kwarteng call it today, a “new era”. But nothing  has changed, the Conservatives have slipped their mask and revealed their fundamental support for the wealthy and privileged few. All of this under the pretence of an intellectually flawed and empirically unsupported fantasy. The next few months will be interesting. 

 

 

I’ve recently been interested in the role of culture in the process of economic development. Within the growth literature this is a topic which finds less support than other more conventional explanations for the global differences in development, such as geography or institutions. In part, this is due to the difficulty in defining culture – let alone attempting to measure it statistically. However, recent research points to culture being an important factor in long-run and current income disparities, both between and within nations.

What exactly is culture? Huntington (2000) describes it as follows:

Clearly, the values and beliefs of a society are likely to shape its political and economic intuitions, as well as affect the incentives and behaviours of workers and businesses. Hence, culture has been claimed to be an important, if not major factor in explaining differences in income across countries. For instance, take Italy, and the widely known Putnam theory. Italy is a relatively small, homogeneously populated, and well connected country which has been politically unified since 1861. However, any visitor to Italy will notice significant differences in the level prosperity between the North and the South of the country. Why is there such a difference? Putnam argues this about culture – or more technically what he terms “social capital”. Broadly, this captures the degree of trust between citizens. Societies with high social capital cooperate better, are honest and value norms of reciprocity and fairness more. In contrast, low social capital societies work together less, distrust others outside their close connections, and tend to display less self-agency over their lives.  This can manifest itself in rent-seeking, corruption, and low investment – all of which can blight development. 

But where does social capital come from? Moreover, if trust, openness, and self-agency are growth enhancing norms – how do they manifest? And can, or should, public policy play a role in influencing them? Recent research has attempted to answer some of these questions. 

A key piece of research in this area is a paper by Tabellini (2010). In this paper Tabellini argues that historical institutions influence contemporary culture, which then affects economic development. Survey data allows Tabellini to codify cultural straights identified as being supportive to growth; trust, respect, and control. These capture an individuals perception of how much they can trust others, how important teaching respect for others is when raising children, and also to what degree they feel like they have control and influence over their own lives. 

Tabellini finds that each of these variables are highly correlated with historical political institutions and literacy rates. For example, people living in a region of Europe, which in 1800 was highly literate and governed by strong political institutions (meaning the ruler was constrained by checks and balances on his or her power), are likely to have higher trust in others today. Higher social capital is then found to lead to higher output per capita, independent of the historical institutions and literacy rates, and after controlling for all other variables likely to influence output today. Thus, it appears culture does matter for development. 

But, how are these “good” norms and beliefs formed? And how are they passed down? In a paper published last month, the role of kinship institutions is argued as being key to understanding this process. The core idea of the paper is summarised in the figure below. It shows a clear negative relationship between the prevalence of marriage between 2nd cousins (or closer) and the level of GDP per capita. The negative slope appears to show that countries with tight kinship cultures tend to be poorer. 

In the detail of the paper, the authors construct an indicator of kinship intensity (KII) for each region, which measures the prevalence of norms related to cousin marriage, polygamy, co-residence of extended families, lineage organisation, and community organisation. They find a higher KII to be associated with a lower level of economic development. One of the channels they explore is how the KII impacts trust. They find that tight kins display much lower trust to outside members compared to inside members. 

Thus, a story is beginning to emerge: deep-rooted kinship institutions passed down through the generations shape the beliefs, attitudes, and underlying assumptions of the population, which in turn either leads to a positive build up of social capital and sustained economic growth, or incubates norms and ideas that inhibit growth. This is only one story; there are infinitely many more. 

However, how does policy fit into this? Is it ethical to even discuss attempting to dismantle certain cultural practises, let only implement policies to do so? 

Firstly, it remains an open question as to whether culture, in the sense we have been discussing here, can be influenced by policy. However, a recent paper by Natalia Bou studies the cultural practises of matrilocality and patrilocality (whether male or female children live with the parents are marriage). Bou focuses on specific policy changes in Indonesia and Ghana, which introduced pension systems in 1977 and 1922, respectively. In theory, the practise of having a child live with the parent after marriage is a form pension security for the parents, since live-in children will be expected to provide support and care for the parents. However, the introduction of a pension system has the possibility of weakening the need for this informal system, therefore the policy has the potential to change cultural norms. Bou finds this is indeed the case: males from traditionally patrilocal ethnic groups exposed to the pension policy are less likely to practise patrilocality in the future. Thus, there appears to be some evidence of policy being able to influence cultural norms, but is this an over-reach by policy makers? 

The very idea of a discussion around culture may offend some. The notion of comparing one culture to another, and therefore inevitably drawing a distinction between a “better” or “worse” culture, is not one I wish to do. Nor is the idea of a world dominated by a single culture (whether it be predisposed to generate wealth or not) a welcome thought. The beauty of the world is largely derived from its diversity and uniqueness. However, on the basis of growing evidence, cultural norms and beliefs do tend to matter for prosperity. Therefore, by caring about the prosperity and opportunities of others, we must also try to understand what factors hold them back – even when that requires examining culture. 

Life is better than death. Health is better than sickness. Liberty is better than slavery. Prosperity is better than poverty. Education is better than ignorance. Justice is better than injustice.

Executive Board of the American Anthropological Associations, 1947

Hence, I argue that the American Anthropological Associations alternative assertion to the U.N. Declaration of Human Rights, which they refused to endorse on the grounds of being an ethnocentric document, is a great benchmark to start an examination.  Almost all would agree that any aspiring culture would not resist change and progress along those lines. Accordingly, it’s important for economists, anthropologists, and policy makers to continue studying the role of culture in economic development. 

This note summarises an online trade seminar which was ran by Rebuilding Macroeconomics and two webinars run by the Royal Economic Society. The focus is on the impact of COVID-19 on international trade, economies, institutions, and societies. The `speakers are:

 

Rebuilding Macroeconomics

Recording of event: https://youtu.be/kTyB3jw7rDU

Isabella Weber – Assistant Professor of Economics at UMass Amherst

Meredith Crowley – University of Cambridge, Cambridge INET

Chad Brown – Peterson institute of international economics, creator of trade talks podcast

Kevin O’Rourke – Professor of Economics, New York University

 

The Royal Economic Society

Recording of event: https://www.res.org.uk/resource-library-page/covid-19.html

 

Daren Acemoglu – Professor of Economics, MIT School of Economics

Jean Tirole – Professor of Economics, Toulouse School of Economics

Isabella Weber: Global division of labour between two eras of globalisation – a long term view on the COVID-19 crisis.

 

• Isabella’s research focuses on a comparison between the first wave of globalisation which occurred between 1896 and 1906 and the second wave of globalisation which is argued to have begun after the second world war and possibly reached a peak in 2008.
• They have done this by creating a novel dataset which looks at a snapshot of trade between 1896-1906 and re-coded it so it matches the latest UN Comtrade trading classification system. This allows direct comparison between modern trading patterns and the trading patterns in 1896-1906.
• The database covers 90% of world trade so is an accurate measure of the trade patterns in that era.
• She took a measure of export diversification which captures how many different types of goods a country exports. She ranked countries by their level of export diversification and found that almost all of the countries which had the highest export diversification in 1902-1905 also had the highest export diversification between 1998 and 2007.
• The main finding is that there has been a relatively stable pattern of polarisation between the diversified global north and the specialised (in raw materials) global south.
• She also finds that countries have become far more diversified over time, but the most diversified countries are all in the global north.
• In the post COVID-19 world she lays out two scenarios: de-globalisation and cooperation. In the former scenario the diversified global north brings “production home” but this will be extremely costly and could cause significant harm and efficiency losses.
• She argues that bringing home production would also increase localised risk.
• For the middle-income semi-diversified countries, it would be costly to reverse export orientated development strategies. For the specialised countries in the global south de-globalisation would be very costly because they cannot produce a lot of goods that they need.
• In the cooperation scenario the world could take action to reduce the just in time supply chain model and implement a buffer stock system. Increased global cooperation on health and environmental standards.

 

Meredith Crowley: the COVID trade collapse – lessons from 2008/09 & insights from micro data

 

• The Great Trade Collapse occurred after the 2008/2009 crisis. International trade flows fell by 10-12%. This crisis is likely to be worse.
• One of the good stories from the GTC is that countries did not increase trade restrictions after the collapse which was surprising but acted to weaken the crash.
• The GTC was very significant and greater than previous trade collapses in 1975, 1980, and 1982. The recovery was faster than some other previous collapse but after one-year trade levels still had not reached the pre-crisis level.
• Some countries were harmed more during the GTC. Mexico suffered a reduction in trade volume of over 25%. The UK was similar to the US and Germany and suffered a collapse in trade volume of close to 15%.
• The UK bounce-back in trade and GDP was muted after the crisis. The UK did not grow between 2009-Q2 and 2010-Q1 which is in contrast to other advanced nations.
• The key factor behind the GTC was the decline in the demand for durable goods. This fed though global supply chains which pre-dominantly service durable goods manufacturing.
• The policy response was not a factor in the size of the GTC.
• In a previous paper Bown and Cowley (2016) find that in advanced countries between 1988-2008 a one standard deviation increase in the domestic unemployment rate increases the number of goods subject to new import restrictions by 50%.
• Using the same model for 1988-2008 they estimated that trade restrictions would increase for 15% of US non-oil imports. In practise, after 2008, only 1% of non-oil US imports were subject to new import restrictions. In the EU, the story was the same.
• These findings show that countries worked very well together after the GTC to limit protectionism.
• The COVID-19 shock is very different to other shocks because it is a demand shock and supply shock. As countries come out of lockdown the restrictions will be relaxed in stages and may not occur in sync with other countries.
• Some firms will be better placed to adapt to these changes than others.

 

Chad Bown: how COVID-19 could bring down the global trading system

 

• This is going to be a very pessimistic presentation. People in the policy world are concentrated on the health aspect of this crisis and trade comes into the conversation often in terms of trade restrictions on medical goods. Chad argues it could become much worse.
• Massive protectionism did not come out of the crisis in 2008/9. General tariffs like MFN tariffs did not move at all. Trade remedies, countervailing duties etc. saw a tiny bit of an increase after 2008/9.
• In 2013 the share of US imports subject to import restrictions reached a low of 1.3% it has been rising steadily since then to just over 4% in 2019. Across the years 2009-2010 there was not an increase which was surprising to trade analysts.
• The flexibility of exchange rates was a factor for this. Cooperation was also key. The G20 was pivotal in shaping the post crisis response to resist protectionism. There is also an argument that global supply chains limit the demand for protection because it inevitably harms global firms which are both importers and exporters.
• Why is COVID-19 different? The economic shock will be larger, the domestic policy response is very hard to get right, the opening of different countries at different times will be a factor.
• The political will for protectionism is stronger than it was in 2008/2009. Examples: the US rules of origin negotiations for the automobiles section of the NAFTA was contrary to what US automobile manufactures want, the Brexit negotiations, the China trade war. Over 80% of US intermediate imports from China are under tariffs of which many are close to 25%.
• The comparison between 2008/09 and now is staggering. The tail end of the Bush administration did not need to get the G20 together at the leader level to promote trade. Domestically it was not that popular BUT it was very important for promoting anti-protectionism. In comparison there was a trade minister meeting on March 30^th, 2020 and during that the US commissioner for trade blamed trade for the crisis.
• Countries have imposed export bans on medical goods which initially started with EU countries banning trade within the EU. This was later relaxed to bans on countries outside the EU. But still shows how multilateralism has failed.
• The US is in election season. Trump will try and blame anyone about the current economic situation. He will eventually blame trade.
• There will be trade deflection to countries which open up sooner and are more open.
• The trading system is very vulnerable to automatic protectionism through anti-subsidy and anti-dumping duties. This could act like a domino effect on the world trading system because firms only need to prove that they have been harmed and a subsidy has occurred.

Kevin O’Rourke: thoughts and ideas

 

• A major caveat is that we are not out of this crisis. It has only just begun so hypothesising about how the future is going to be is hard in the middle of a crisis.
• Another caveat is about the use of the world globalisation. It is a crude measure which can mean commodity trade, capital flows, migration, disease spread, multilateralism. It is a multi-dimensional process with each dimension having different effects. You cannot be globalist or anti-globalist because it is too crude.
• De-globalisation is the increase in cost of doing business across borders. The implication of this definition is that if a business decides it want to on-sure production this would not mean de-globalisation because the cost of business has not gone up.
• Historical analogies. Late 19^th century, there was a big decline in trade costs and a rapid increase in trade. This created winners and losers which eventually resulted in increased tariffs. I think this has been happening and can be seen in the Brexit story and US trade war. This is not COVID-19 related but COVID has been super-imposed on this.
• 1930s is another possible analogy that doesn’t work. There was a huge increase in tariffs which was mainly driven by a desire to increase domestic demand by reducing imports. There is some evidence that this was individually rational for countries to do and there is evidence that positive tariffs rates and GDP growth were correlated.
• Germany and Japan rise in geo-political prominence in the early 20^th This was partly driven by a fear of being dependent of strategic resources. Both Germany and Japan wanted oil and rubber. Comparison with needing medical supplies. Luckily, you can produce medical suppliers anywhere and don’t need to go to war to get them.
• The most obvious analogy is post WW2. The world was traumatised. Nation states had failed to provide security to their citizens which is their most basic function. Institutions were set up to provide security. There was balance between trade liberalisation and protectionist states.
• In the 1950s and 1960s in the developed world people needed food security. Nation states introduced national agricultural policies. This was replaced by the common agricultural policy along with other minimum levels of regulation in the Treaty of Rome.
• The system has failed us today. In the next 20-30 years as long as memory exists of COVID-19 citizens will demand security from virus. That involves a balance between national protection and multilateralism which will be very technical.
• The European Commission will try and replace domestic borders with common external borders. This requires common policies. For instance, this time we could see a common health policy in the EU. Food security will be critical.
• Governments will not put themselves in a position where they are scrambling for PPE, but this needs to be balanced with multilateralism.
• The market will not provide us with excess capacity because it is inefficient so there is room for state involvement.
• One of the most striking revelations of the crisis of how it has revealed preferences. The restrictions are popular globally. The crisis is telling us people are very risk averse, they care about people other than themselves.
• COVID is not climate but COVID has pushed climate even further up the agenda. People care about others more than GDP – this is one of the key trade offs with climate action.

 

 

Daren Acemoglu: unknowns, challenges, and opportunities in the time of COVID-19

 

• Major public health implications, major economic implications, major political changes (to follow).
• Four key unknowns:

 

1. Dynamics of infections when epidemics interact with economic and social behaviour
2. Economic interventions when supply chains may collapse
3. What kinds of institutions and states-society relations led to the failures and delays in government responses?
4. What the pandemic will imply for the future of economic and political institutions

 

• “SIR” model used by epidemiology
• R is the rate of infection. Lockdown lowers the R level.
• Beta depends on economic and social behaviour affect “matching”
• In practise, different subpopulations have different infection, hospitalization, and fatality rates.
• Supply chains have largely been ignored by policy. Policy has focused on transfers to workers, liquidity for businesses, and limiting the collapse of aggregate demand.
• Disruption to supply chains can have large multiplier effects. Some critical parts of the supply chain may need support more than others which can re-energise the whole supply chains.
• Institutional failures – huge variation in response to the pandemic across countries.
• One reason – atrophying in the capacity of state institutions.
• Trust in state institutions is low apart from China, Singapore, Denmark. Preference falsification may be why authoritarian governments experience higher trust from their citizens. But this “fake” trust may still be valuable in crisis.
• Critical juncture for our institutions: anti-globalisation vs multilateralism, privacy vs security, authoritarian leader’s vs liberal leaders, democracy vs autocracy.
• A new totalitarianism? Beveridge report in 1942 and the rise of the social state. Hayek worried that the state would dominate society as a result.
• There is a balance between the state and society. As the state shoulders more responsibility it requires an active society to balance the power to prevent a leviathan state from emerging.

 

Jean Tirole: the short, medium, and long-term impact of COVID-19

 

• Lockdown costs and double hit on developing countries who depend on tourism and more exposed to commodity prices.
• Moral hazard is low – you need to protect fragile players like the self-employed, unemployed.
• Protective structures like job retention schemes, protect SME’s, and most affected sectors.
• Limiting economic damage through support not stimulation. There shouldn’t be an open bar e.g. no helicopter money.
• High increase in public debt which is unavoidable. G is likely to be low, but r will be high despite high public debt. You need trust in the public death.
• 5 ways to pay for the debt from the crisis.

 

1. Debt slowly repaid from primary surpluses – reduce consumption
2. Debt repudiation – the state required to balance its budget by not borrowing
3. Exceptional wealth and income taxes
4. Debt monetisation – the central bank could buy the debt back…but this could cause inflation.
5. Coronabonds – making the countries in the EU jointly liable for the debt of each other

 

• Re-thinking values and organisation of society? Business as usual or wakeup call?
• Citizens – join social groups, more empathy, common external enemy
• Policy makers – will they take a longer-term perspective?
• Widespread policy myopia (aggravated by populism)
• Pandemics are no longer a rare event.
• Evolution toward less consumption and more investment.
• Globalisation – criticism of globalisation during this crisis,
• The question is combating the perverse effects of globalisation.
• Recommendations:

1. Make a distinction between:

• Supplies that are essential in crisis times: markets don’t work for these goods.
• Ordinary consumption goods: supply-chain diversification = prerogative of firms

 

Resist lobbies which will ask for protection or “essential” status.

 

2. Be flexible and clever

• Reshoring does not mean resilience
• Technological evolution: 3D printing of ventilators?