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Globalisation 3.0

By Diego Castañeda Garza

Some scholars would argue that the world was first globalised as far as five centuries in the past when the European conquests of the new world brought its sinews to the old. When silver began to circulate the globe as the first truly global commodity (Flynn & Giráldez 2004). However, for most economists, the world was first globalised as close as two centuries ago, after the end of the Napoleonic wars, with the rising industrial power of the British nation and the peak of its imperial power (O’Rourke & Williamson 2002).

In any case, five or two centuries ago, globalisation has always implied distributional effects, winners and losers in each corner of the world it has reached. First, the enrichment of political and economic elites in the colonial powers and its colonised countries and then again at the time of the great divergence when countries started to industrialise, but most of their populations at either time did not. Today’s globalisation is not different; we have designed it that way.

Since the beginnings of trade theory with David Ricardo’s Principles of Political Economy and Taxation and the introduction of the idea of comparative advantage, the existence of distributional effects was a distinct aspect of international trade. Trade specialisation following national comparative advantages strongly favoured some sectors and industries and hurt others. The gains for trade were never distributed equally among all sectors; the distribution of wages, benefits and rents entailed by necessity winners and losers. Nevertheless, for a long time, economists, when engaging the public about international trade and its benefits, when speaking and teaching about Ricardo’s ideas (and their extensions through the Hecksher-Ohlin model, i.e equalising international prices and wages entails winners and losers) obviated this basic result:often not all benefit from trade.

As Polanyi (1944|2017) argued, the attempt to disembed politics from the economy entails risks. In the past, the negligence encouraged by not recognising the distributional consequences of globalisation and the failure to address them have been a source of social and political instability. Ignoring the people propelled backlashes against globalisation more than a century ago. At the end of the 19th century and the beginning of the 20th, one of those backlashes occurred. The consequence of the backlash was that several countries (i.e. Germany, France, Sweden) that previously had been moving towards trade liberalisation halted their movement. They started to look backwards to protectionist policies. In time, the outbreak of the Great War finally ended the so-called first globalisation (O’Rourke & Williamson 1999).

From this historical experience, we should have learned an essential lesson in our times, but we failed to do so. The lesson is that there is nothing natural nor granted in the process of achieving a sustainable global economic integration. Similarly, there is no linear path of development that necessarily arrives at a hiper-globalised world. Globalisation today, or in the 19th century, is an international political construct supported by the equilibrium of power and interests between existent states. The inequality embedded in our economic systems, in the same way, exists largely due to political economy reasons.

After the 1970s, the end of the trente glorieuses, a new policy framework characterised by deregulation, liberalisation and the capture of the state by private interests took root around the world. It propelled the new second globalisation. Over the last four decades, we have been living in an increasingly interconnected world. For decades, the rate of growth of international trade surpassed the growth rate of the world economy, a phenomenon often called hyper-globalisation. Underlying this era, we have witnessed high-speed economic growth in some regions, but also growing inequalities and accelerated environmental degradation. Now, at the end of this period, there is a trend break in which the costs of the politics of previous years are manifesting themselves. We are witnessing a reversal of fortune in which China is returning to a prominent role in the global economy. Meanwhile, the advanced countries that defined the rules of the world economy are riddled again with backlashes, political instability, and economic stagnation.

These already turbulent times got compounded with the pandemic and the economic fallout it unleashed. However, this bleak scenario also presents us with opportunities. The current sense of crisis around the world, especially in the advanced countries, provides the imperative to solve the “twin problems” of the 21st century: rising national inequalities and climate change. It is a unique opportunity to redesign globalisation under new principles. It represents a chance to redesign it around principles that privilege equality, sustainability, and the existence of global public goods, like global public health and our environment.

The Great Lockdown, a necessary response due to the Sars-CoV-2 pandemic, has served as a mirror for nations to look at themselves, it has made their problems even more evident. The global nature of the current crisis and the way it interacts and exacerbates within-country economic inequalities exhibits economic weaknesses, intensifies geopolitical conflicts, and highlights the need for global solutions. History has yielded us with a perfect context to change globalisation. It is an opportunity to work towards the solution of the twin crisis and, in the process, create a new globalisation 3.0.

Globalisation 3.0 should be constructed as a more sensible process of economic integration. It should be embedded with different rules and norms of good behaviour, that privileges the needs and preferences of the world population and not the preferences of global elites. Instead of focusing on capital flows and finance, it should focus on public health, climate change, labour rights. It should do a better job of representing the priorities of developing countries. Historical experiences either in the times of the gold standard, Bretton Woods or the current one, shows to us that the rules give the shape of globalisation. The rules we agree to uphold, the priorities we set.

The construction of globalisation 3.0 should ensure countries have enough policy space to guarantee economic, political, and social stability. In that sense, instead of reaching from the global to the national in what constitutes a politically fragile architecture, the new rules should reach from the national to the global. It should ensure the states liberty to pursue pragmatic policies that enhance their development capabilities. Room to do active industrial policy, to correct economic inequalities through adequate taxation. That space implies the need to accept the embeddedness of politics in economic matters, to accept that economic policy is unsustainable without addressing mass politics.

To fix our problems, the existence of tax havens, climatic disaster, the surge in inequalities, and their feedback loop towards political life is a necessity of our time. But it will not be possible if we choose to preserve globalisation in its current form. There is no need for a tradeoff between national policies and true global imperatives. Both can be aligned, but they require that we finally learn the lessons of history and redesign our global economy in such a way to leave room for both. In the end, it is only the harmony between national and global interests that will allow us the capacity to respond to our challenges. Redesign the functionings of the world economy is the path to preserve social stability, develop our countries and respond to the crises of our times.

About the author: Diego Castañeda Garza is an economist and economic historian; he is the head of the economic cluster at Agenda for International Development (A-ID) and a coordinator of the Economic History Working Group at the INET’s Young Scholar Initiative.

This article is a runner up in an essay competition held by the UNCTAD YSI Summer School on Globalization and Development Strategies. Participants of the school worked with senior scholars to fine-tune their drafts, and the top-5 articles were published here. For other articles in the series, please click here.

About UNCTAD UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964. Its headquarters are located in Geneva, Switzerland, with offices in New York and Addis Ababa. UNCTAD is part of the UN Secretariat, reports to the UN General Assembly and the Economic and Social Council, and are also part of the United Nations Development Group.

Global economic justice: from aspirations to transformative action

By Sergio Chaparro Hernández

The unfulfilled promise of a just global order

The Universal Declaration of Human Rights states that everyone is entitled to a social and international order in which her rights can be fully realized. However, the functioning of the global economy today is far from aligned with the kind of order the Declaration prescribes.

Before the COVID-19 pandemic, inequalities between and within countries were already alarming. But confronted with disturbances such as pandemics, the world seems to move towards a greater concentration of power and wealth in the hands of the few, while disadvantaged populations are left behind. Lower-income countries face severe restrictions on their policy space in trade, fiscal, industrial, digital and monetary matters, and the global financial architecture exposes these countries to increasing systemic risks. International cooperation, which is highly necessary to address pressing global challenges, is replaced by competition between States against a background of increasing corporate power. The global order is not enabling the full realization of rights, but rather restricting human flourishing for the many while reinforcing privileges for the most powerful.

Neoliberalism and (the lack of) global democracy

Neoliberalism, understood as the project of creating a world tailored to the needs of capital, faces a serious crisis but has proven its ability to reinvent itself. It is true that some of the entrenched policy myths that its advocates had turned into ‘conventional wisdom’, such as the benefits of fiscal austerity or free trade for all, have been called into question in the context of the pandemic. But they might be revived under more friendly packaging. It is worth remembering how corporate attempts to capture the 2030 Agenda and the Paris Agreement are well advanced. In fact, international financial institutions (IFIs) are prioritizing private finance mechanisms -such as public-private partnerships- over domestic resource mobilization through progressive taxation or through development banks to achieve the Sustainable Development Goals (SDGs) and building ‘green’ infrastructure. Then, it would not be surprising that, in the absence of orderly and massive debt relief and restructuring, a new wave of austerity will be presented sooner than later as the only way to restore trust in domestic economies and let the private sector play the role of ‘Building Back Better’.

In this context, the lack of democratic governance on economic matters goes without saying. Currently, key decisions to address the unparalleled risks and instability that hyper globalization has created are being taken on an ad hoc basis in spaces such as the G-20, when not in opaque instances in which corporate interests prevail. These spaces lack any grounds in international law to operate as the captains of the global economy. International financial institutions continue to function under a plutocratic model that assigns decision-making prerogatives based on the outdated balance of power of the post war economy. In other fields, such as in global tax matters, the OECD controls the agenda and works as the de facto standard-setting global institution, in the absence of a multilateral body in which all countries can participate on an equal footing. On the investment side, there is a semi-private justice system in which investors can sue States before arbitration tribunals for exercising regulatory power to protect people’s rights, arguing that their expected profits will be reduced as a consequence. On the monetary front, while central banks in high-income countries absorbed the economic shock of COVID-19 by expanding their balance sheets in unprecedented ways and without meaningful democratic accountability, lower income countries struggled to overcome harsh liquidity constraints awaiting for global responses that haven’t occurred.

This democratic deficit and the consequent asymmetries of power in the global economy may seem, in principle, disconnected from the daily struggles of ordinary people or social movements. But they have everything to do with the unmet demands for better health care systems, adequate budgets to combat gender violence, or achieving substantive racial equality. Indeed, they are an important factor undermining the capacity of domestic institutions to deliver as well as a driving force behind the way opportunities for human flourishing are unevenly distributed. Among the interests neglected by the way the global economy works are not only those of marginalized communities in the Global South. As it is the case with the dollar hegemony in the international monetary system, hierarchical arrangements do not necessarily benefit the working class neither in the US nor in other rich countries.

Expanding human capabilities in our shared world

Prior to the pandemic, there was an influential narrative that despite widespread pessimism and malaise the world was going through impressive progress, and things were essentially changing for the good. Champions of these views argued that world poverty had been declining and poor countries were progressively catching up with the richest, without explaining that the so-called ‘convergence’ is driven almost entirely by China and East Asian countries. Furthermore, any criticism of the global order calling for structural transformations used to be rejected under the idea that it could end up throwing the baby out (all the supposed benefits and successes achieved by the global order) with the bathwater (the sources of indignation or rage against this order).

This line of thinking falls within the old way of economic reasoning that we must overcome. Countries have gone through paths of poverty reduction and improvements on basic indicators of well-being (not for everyone, and not evenly distributed), while putting more pressure on planetary boundaries and exacerbating inequalities and power asymmetries. Now we are seeing how decades of progress in the fight against poverty in several countries are being erased by factors that cannot be considered merely incidental to the way the global economic works. As scientific evidence has shown, pandemics are not exogenous shocks to economic systems: zoonotic diseases such as COVID-19 arise from the accelerated intervention and degradation of ecosystems by unfettered human activity. Likewise, preventing the catastrophic consequences of climate change depends on our determination to make major shifts in the way we produce, distribute, consume and value in order to adequately address the greatest collective action problem we have ever faced. Even if States were to adopt pro-growth policies that lead to poverty reduction (such as carbon-intensive strategies of development) they could end up reinforcing power arrangements to preserve the status quo and precluding the emergence of the kind of coalitions that are needed to successfully address the risk of extinction and other systemic threats.

Therefore, we need an alternative framework for action – one that enables us to find solutions to our collective challenges in a world with ecological ceilings, while expanding the capabilities of communities and individuals to live according to their own values. Under such a framework, it should not be enough to make progress in basic indicators of well-being regardless of the path chosen, but also to build more equal relationships among States, communities and individuals and create the material conditions for cooperation. To that end, not only institutions and rules matter, but also the distribution of resources, voice, and power.

Global economic governance and a new set of policies

The quest for global justice has focused on the institutional global arrangements that would enable individual States, and particularly low- and middle- income countries, to choose and implement a set of policies that allow them to catch up with the ‘developed’ nations of the world. Such a linear and monolithic view of progress ignores how far the world can go if resources, power and voice were given to communities to seek their own development paths under fairer global rules.

Rather, global justice must be geared towards creating the power arrangements and the material conditions to allow the expansion of human capabilities in our common and interdependent world, leaving no one behind.

This means at least three key shifts in priorities as part of a broader effort to move towards a rights-based economy.

First, expanding lower-income States’ policy space and supporting them for providing comprehensive social protection and implement an audacious set of policies to manage increasingly disruptive risks that could throw millions to poverty and unemployment in a matter of days. Public institutions must be in a position to fulfil basic rights that people can be deprived of due to the intricate network of interdependent connections the global economy has become, including through quality care services and the right to benefit from a compensated general reduction in working hours.

Second, move towards a multi layered global governance system aiming to correct power asymmetries, and give voice and decision power to multiple actors in truly democratic global forums (including social movements, civil society organizations, grassroots, small-scale business and emerging actors). Such a multi layered system should prioritize ambitious targets in terms of carbon pricing, climate change adaptation, free access to public goods, debt restructuring, combating tax evasion and avoidance through taxing multinationals as units (not as separate entities) and the definition of a minimum effective corporate tax rate.

Third, creating the institutional, legal and material conditions for every person in the world regardless of their nationality, gender, race or socio-economic status to use the best available knowledge, technology, data, and a basic capital endowment to pursue their own goals, as well as to benefit from scientific progress and its applications (including free and timely access to COVID-19 treatment and vaccines as public goods).

Geopolitics and collective action for justice

It would be naive to think that these changes can be achieved in a top-down direction and outside of geopolitical dynamics, but it wouldn’t be accurate either to ignore the contradictions of the current global order, and the increasing demands for systemic change. These changes require going beyond the narrow logic of nation-states as the main channels through which human interests in the global order are represented and negotiated. The gap between the possibilities that technological and productive advances have opened up and the inability to put them at the service of fundamental human needs reflects, in turn, the magnitude of what alternative schemes of social cooperation could achieve. For example, the same technological tools used for State surveillance, can also be used for emancipatory purposes if those tools were reappropriated by social movements and democratic forces, as the spread of climate justice, anti-racist or feminist mobilizations beyond borders have shown. Amid the crude exploitation of fear and despair in times of Covid-19, it is worth pushing for transformative joint action and remember Thomas Fuller’s words: ‘the darkest hour is just before the dawn’.

About the author: Sergio Chaparro Hernández is an Economist and M.A in Law from the National University of Colombia. He serves as Program Officer at the Center for Economic and Social Rights (CESR). Twitter: @SergioChaparo8. Email address: schaparro@cesr.org

Highway to hell: How neoliberalism is driving “advanced” economies towards a Latin American-style accumulation pattern

By Baptiste Albertone

The weight of the past has sometimes been more present than the present itself. And a repetition of the past has sometimes seemed to be the only foreseeable future.
Enrique Krauze

The history of independence in Latin America is a history of reproduction of the same, but different. The Napoleonic wars that weakened the Crown provided the opportunity for Latin American landlords to finally claim the full possession and administration of the fertile soil and abundant cheap labour at their disposal. As the first nations proclaimed their right to self-determination, the new states engaged in the consolidation of a new institutional framework, independent of the Crown, but reconfigured to fit the taste and interests of landed-elites and the colonial bourgeoisie. As it is common in the revolutionary processes of nations under colonial rule, despite the adhesion and (indispensable) active participation of the popular sectors, only a segment of the elite benefited from the structural reconfiguration of what the Marxist literature calls: a Bourgeois revolution.

The political rupture translated into economic continuity: The regime of accumulation inherited from the colonial period remained unaltered to reproduce a rentier-style capitalism. Indeed, the material reason for independence was not the transformation of the economic structure but the conquest of a larger share of its benefits by one class. In addition to internal interests, a parallel international driving force supported the maintenance of this rentier regime: the centro-peripheral dynamics of the world economy, which placed Latin American nations in a subordinate and “dependent” condition of natural resource providers for “core” economies.

The role of economic ideas has certainly been decisive in the ability of the rentier regime to reproduce itself despite its deleterious effects. First, in the post-independence period, the neoclassical theory of comparative advantage offered a strong argument against developing a manufacturing sector through industrial policy. Later, in the early post-war years, the US administration-backed modernization theoryacted as a strong counter-discourse to classical development theorists’ arguments in favour of a structural transformation. Finally, from the late 1970’s onward, the infamous Washington Consensus came to provide an intellectual rationale to the political and historical project of capital and power concentration with de-industrialisation in the Latin American continent.

The socio-economic consequences of the rentier developmental mode are profound. As the Latin American structuralist school has vastly discussed, the rent-seeking style of development has favoured the persistence of 1) a large pre-capitalist sector, and 2) a highly heterogeneous intersectoral productivity. These structural determinants have major consequences on both pre-tax and post-tax income inequality dynamics. First, the economic dualism of the productive structure, a feature of rentier capitalism, implies that the share of labour in national income is very low In fact, land concentration and the scarcity of productive employment produce structurally unequal labour markets, with a very high number of informal workers acting as a reserve army. Second, the absence of a meaningful social contract between the governing elites and the popular sector gives rise to a regressive and fragile fiscal state, reluctant to influence the structural level of inequalities and to finance public goods.

Therefore, the Latin American state was designed in such a way to guarantee the reproduction and the capture of the benefits of economic development by a wealthy minority, echoing Smith’s view that “[c]ivil government (…) is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all”.

The so-called era of democratisation in Latin America did not alter these power asymmetries. The structural configuration of extreme wealth and income inequalities as well as an almost unlimited ability to match economic power with political power gave rise to a form of quintessential Neoliberal state where, in José Gabriel Palma’s words the “new ‘democratic’ agenda of capital ensures that the state will fulfill its sole function of reproducing the new capitalist system”. The consequence is a unique level of inequality characterised by an unrestricted capacity of the elites to perpetuate themselves despite political changes.

But if the recipe for Latin American success once appeared to be a well-kept secret – only shared with some South African nations – it may no longer be the case. The neoliberal revolution that successfully altered labour markets and fiscal structures of most OECD countries is producing what Palma describes as a form of “reverse catching up”, with some advanced economies moving towards a Latin American style of accumulation.

The graphs below illustrate the evolution of pre-tax inequalities in Germany, the United States, and the United Kingdom, three of the countries most affected by Neoliberal — or Ordoliberal in the German case — reforms.

Since the 1980s, these countries have experienced a dramatic rise in the share of the national income going to the individuals in the top 10% of the income distribution, mirrored by an almost identical, but opposite, trend affecting the share held by the bottom 40%. These tendencies are certainly not independent of the political and economic context that characterised the period.

From the mainstream viewpoint, the justification given for the tragic evolution of inequality is that of an growing capital-output ratio driven by entrepreneurial investment leading to an elevation in the share of profits in national income.

Nonetheless, when looking at real investments’ figures, the picture turns out to be dramatically different from the expected dynamic. In the US, the gross private investment share of GDP has fallen by 3 percentage points since the late 1970s. On the contrary, what we see is a growing capacity from corporate elites to capture the benefits of economic growth with the help of both globalisation and financialization dynamics. Consequently, between the mid-1970’s and 2017, while real US GDP did more than triple, the real hourly wage of most Americans stagnated.

What is at stake is a reconfiguration of the political space in the image of the Latin American oligarchical institutional style, where hierarchical economic principles subordinate the democratic and representative principles of politics embodied in the figure of the State. According to Branko Milanovic, the neoliberal restructuring while “it maintained the pretence of equality (one-person one-vote), (…) eroded it through the ability of the rich to select, fund, and make elect the politicians friendly to their interests”. In other words, neoliberalism should be understood as an active project that, as Quinn Slobodian notes it, “rather than ‘freeing’ or ‘disembodying’ ‘the’ market, [attempt] an ‘encasement’ of economic structures, isolating them from popular democratic demands”.

By weakening the power of labour with more flexible workers’ protection, unravelling the Welfare State where it existed, engaging in a privatisation of public goods — the capital of those who don’t have any —, by adopting tax reforms that enhance regressive taxation and tax evasion, and by globally consolidating what Slobodian calls “the human right of capital flight”, neoliberalism demonstrated its striking effectiveness as a “technology of power” to rewrite the rules of the game in favour of capital accumulation. In the same way as Latin-American elites structured the newly born nation for the benefits of their interests, the recent success of Northern capitalist elites to create an environment suitable for the flourishing of their rent-extraction ambitions.

The structural reconfiguration that has been taking place since the mid-1970s is simultaneously endangering social and ecological balances, as well as putting societies at risk of implosion under authoritarian governments eager to establish Neoliberalism in a single country. We might be heading towards a dark horizon sketched by Slobodian as one of “brute competition in a zero-sum world where all that matters is the enrichment of an ethnically defined, territorially bounded national population”, where the protection of the environment – a common good by definition – is relegated to the tenebrous depths of national political agenda.

From this frightening observation arises an unsurpassable necessity to engage in a struggle for the transformation of economics — which today serves under its technocratic authority as the core instrument of the corporate elites’ political project — so that it becomes a democratic instrument for a fair and ecological economic transformation.

About the author: Baptiste Albertone is an MPhil candidate in Development Studies at the University of Cambridge and holds an MA and BA from the Institut d’Etudes Politiques de Paris. His research focuses on industrial policy and sustainable development in the Latin American context. Twitter: @BaptAlbertone

New Economics for Sustainable Development: Alternative economic models and concepts

By Dr. Chantal Line Carpentier

The widespread neoliberal model and the financialization of the economy is linked to the skewed system by which production factors are rewarded, whereby increasingly the lion’s share of income generated is going to reward capital compared to labor thereby increasing inequalities. While the maximization of profits at-all-costs economic model and its linear consumption and production patterns of “take, make, use, and dispose” are leading the rise of greenhouse gas emissions, biodiversity and ecosystems loss, and water, soil, and ocean depletion. The pandemic has exposed the interdependence and fragility of the economic, financial, environmental, and health aspects of human life, as well as the interrelation among these four dimensions as we meet increased material demand by encroaching on the last forested frontiers leading to increasing zoonoses.

The Sustainable Development Goals (SDGs) and the Addis Ababa Action Agenda for Financing for Development (FfD) adopted unanimously by all UN member States in 2015take into account these interconnections and thus provide roadmaps, principles, and means to channel previously unavailable funds that are being rolled out by governments and international organizations to support collapsing economies. These trillions in public funds that just materialized must help advance the transition to economic models compatible with the SDGs – already not on track to be met prior to the pandemic according to the Global Sustainable Development Report 2019. The transition is feasible within the planetary boundaries but we need new economic and financial models. UNCTAD has called for a Global Green New Deal (GGND) but it turns out that blue, orange, purple, and yellow economies together have a better chance to rebuild resilient, inclusive, and more equitable economies. And this is in line with requests made by UN member states that the United Nations ensure its work is tailored to the different contexts in which it operates.

The Green New Deal extends the US “New Deal” approach of massively investing in infrastructure projects to create jobs and get the US economy out of the Great Depression, to target jobs in the green and new economy sectors such as resilient construction, decarbonized energy, clean transport, and sustainable agriculture and cities. The Global Green New Deal (GGND) proposed by UNCTAD crucially includes an equality and equity dimension. Under the GGND, the international community would have to address the root causes of inequality. Spurred by international solidarity and the realization that our economic, health, and political systems are interdependent, developed nations should not only fund their green, blue, orange, purple, or yellow economic stimulus but also support that of developing countries. This would allow developing countries, where most new infrastructure is being built, to use circular economy principles, avoid investing in stranded assets, whilst generating jobs to help workers’ transitions to the new economy, such as from fossil fuels to renewables energy.

The circular economy uses science, technology, and innovation to increase efficiency by designing for recyclability and re-use at the end-of-product lifecycle and cutting out waste and pollution from production systems. It aims to produce more with less waste, resources, and energy through a make-use-recycle-reuse circular pattern. Many countries have embraced the concept. For instance, Uganda does so by using biogas technology, e-waste management, organic agriculture, green manufacturing, and eco-industrial parks. New business and distribution models are needed to achieve deployment at scale.

A related concept is “frugal innovation” whereby the aim is to do “better with less”. A frugal mindset creatively builds upon and repurposes existing technology and innovation and aims to provide low-cost, high-quality solutions to the most pressing issues of the world; it is thus more likely to view inequalities and climate change, and other social and environmental issues as business opportunities. The pandemic has accelerated the digitalization of the economy and the use of automation and artificial intelligence. In this sense, policies and fiscal stimulus that incentivize frugal innovations could accelerate deployment. While better reuse of agricultural and other scrap materials, as well as investment in rural infrastructure, could scale up access to basic services such as water, sanitation, and energy to previously un- or under-served populations while fostering rural MSMEs and job creation.

The Blue Economy is the green economy concept adapted to the ocean economy that could benefit many Small Island Developing States (SIDS) with massive ocean resources and developing countries with long coastal areas.

Similarly, the creative or orange economy, which relies more on human capital and ICTs, can support youth entrepreneurship and job creation. The orange economy is the trade, labor, and production of the creative industries, such as advertising, design, publishing, software, Film/TV/Radio. It requires a labor force with the ability to think and act creatively. The creative economy supports sustainable entrepreneurship and empowers innovators, especially the generation that grew up in the digital era. Marketing, fashion, or media companies also influence values and consumption, and lifestyle choices as they are often operated by young people who tend to be purpose-driven and support sustainability. A dynamic creative economy can thus play a vital role in promoting other alternative economic models, especially in developing countries.

The yellow or Attention Economy is the monetization of consumer’s attention by platforms such as Google, Facebook, Instagram, Snapchat, Twitter, Tik Tok among others by collecting vast amounts of information on consumers. They monetize this information by developing increasingly sophisticated algorithms and persuasion techniques to keep people clicking scrolling, and sharing. These techniques prey on many of human core subconscious tendencies for pleasure or fear to trap people’s attention and alter human behavior or perception. This market, valued in the trillions of dollars, is increasingly believed to be sowing the increased polarization, extremism, and radicalization being observed currently.

However, if harnessed, the Attention Economy could become a powerful tool to effectuate the necessary behavioral changes needed to transition towards the world we want, thriving in authentic mutual connection by using technology to bring humanity back into alignment with the rest of nature and the SDGs.

It is also an opportunity to build their care economy while creating more decent jobs and addressing gender inequalities. The care or “purple economy” – with investment in education and health providers for children, elderly, people with disabilities – would create 2.5 times more jobs than investment in physical infrastructure, create 30 times more jobs for women, and ease restriction on women’s time, and have greater and fiscal sustainability

To be even more inclusive and resilient, in line with the 2030 Agenda, these models could be supported by the Social and Solidarity Economy Organizations and Enterprises (SSEOEs). The Social and Solidarity Economy (SSE) is people-centered, addresses exclusion by reaching-out and incorporating marginalized groups in supply chains and facilitating their vertical integration into the larger economy. SSE also fosters shared prosperity through shared ownership of assets and means of production. It also promotes active citizenship, participatory democracy, and a pluralistic economy which bolsters social cohesion, accountability, and sound governance (SDG16).

SSEOEs include worker, producer, and housing cooperatives that share the features of joint ownership and democratic governance. Being an integral part of their communities, these organizations also have a stake in ensuring the social and ecological integrity of their host communities in the short and long term, which is not necessarily the case for publicly listed or privately-owned companies. Moreover, cooperatives have shown to be a prolific job creator as an estimated 9.5 percent of the world’s working population are employed by cooperatives.

We cannot afford to waste another crisis. The pandemic is and will be costly. Funding the transition to green, blue, orange, and purple economies is feasible! We have a duty to use the trillions that have materialized to jump-start and accelerate the transition to new economic models that can tackle the complex interdependencies among the SDGs. If international solidarity is not sufficient justification to support developing countries, the interconnectedness of our health and the ecosystem demonstrated by the pandemic should be.

About the author: Chantal Line Carpentier is the Chief of the UNCTAD New York Office of the Secretary-General. The views expressed in this publication/study are those of the authors and do not necessarily reflect those of the United Nations including the UN Conference on Trade and Development. This article builds on a draft developed with Raymond Landveld and Olivier Combe, Economic Affairs Officers in the UNCTAD New York office.

Responsibility Shifting in Investment and Sustainability

By Soo-hyun Lee

When it comes to understanding the relationship between investment and sustainability, national and international governance institutions take a facilitative rather than regulatory approach.

This is largely premised on two assumptions: (1) overreach would result in regulatory chilling that could limit investment and (2) regulating investment inflows would limit their potential economic impact. Though taking place in different forms between portfolio investments and foreign direct investment, a facilitative approach, in principle, shifts the responsibility of defining and understanding the interplay between investment and sustainability to market interactions: between the investor and the recipient.

Assessing the facilitative approach to investment and sustainability within the microeconomics of sustainable development policy renders some noteworthy observations. Namely, creating a regulatory and governance environment that facilitates the consumer and producer, or in this case the recipient and the investor, shifts responsibility away from the government or prevailing institution from taking a more prescriptive approach: defining, implementing and enforcing a more substantial linkage between investment and sustainability.

A prescriptive role, while more vulnerable to the potential consequences of regulatory chill, may be necessary to administering the nexus between investment and sustainability because sustainability as a motivating factor does not naturally arise from the economic rationality that fuels market interactions. The relationship between investors and the recipients of investment, just as that between producers and consumers, does not function on the logic of advancing sustainability, but rather economic profit maximization. For this reason, should their interaction deviate from this core market-based logic by, for example, running deficits in consumer and/or producer surplus, or being involved in investments where risk supersedes returns, their interaction is jeopardized and likely to be discontinued. For that reason, shifting the responsibility to the consumer to fuse a more molecular bond between investment and sustainability seems destined to meet an inconclusive outcome as it saps away the essential motivation to shoulder that burden both materially in terms of resource allocation and substantively as a determination to form a meaningful investment and sustainability nexus.

Turning to views in sustainable consumption, Mont, et al (2013) identifies a similar paradox in their work for the Nordic Council of Ministers based on interviews with policymakers as a myth of sustainable consumption. They write that shifting the responsibility of sustainable consumption to the consumer limits state involvement to raising awareness rather than taking more proactive interventions against unsustainable consumption. The inherent problem behind shifting responsibility, they write, is that consumer behaviour is based on contextual factors that are “beyond the control of individual actors”, namely prevailing social norms that shape a consumer’s understanding of consumption in connection to sustainability. Presently, this norm is that sustainable consumption is an extraordinary decision that requires justification (Mont, et al, 35-37) as it deviates from market-based reasoning. The consumer requires additional justification for these decisions to justify that divergence: why to choose a product that provides comparatively less consumer surplus by paying a higher price or paying a price to receive less utility arising from consumption?

Lorek and Spangenberg (2013) explains responsibility shifting in sustainable consumption as the lock-in situation, where transitions to sustainability is contingent on more growth and technological innovation. This is reflected through the I = P*A*T equation, which offsets the added cumulative climate impact (I) as the function of the factor of population growth (P) and greater per capita affluence (A) by technological progress (T). With advances in (T), higher unsustainability derived from increasing (P) and (A) values are offset by technologies that enhance the sustainability of consumption. Herein lies one of the causes behind responsibility shifting, which is a “technological optimism” that firms will advance the state of technology if given the means to do so (Lorek and Spangenberg, 35). The central economic tenet behind this technological optimism is economic liberalism, which attributes the agency and primacy of economic optimality to market-based actors, in turn manifesting external intervention by the state or another prevailing authority as obstacles to that optimality. As such, the role of the state or prevailing authority is limited to providing information, shifting responsibility to market-based interactions (Lorek and Spangenberg, 40).

Responding to the situation of lock-in, which strives in the ecosystem of economic neoliberalism, Dalhammer (2019) advances that policy instruments are necessary to form a sustainable choice architecture that features sustainability as the default option. Lock-in prevents microeconomic transitions to strong sustainability, such as adopting ideas of consumptive sufficiency, thus rendering top-down involvement of the government or prevailing authority necessary (Dalhammer, 140). Simultaneously, policy instruments should be mobilized within a “reflexive governance mode”, which Mont (2019) identifies as a standpoint of continuous learning and acknowledgment of intertwining contextual factors that influence consumptive behaviour (Mont, 3). The policy instruments arising from this mode should aim to facilitate the transition from system optimization, which perpetuates the business-as-usual scenario, to system transformation, which seeks to integrate alternative solutions to the policy and governance process that move beyond the primacy of consumer sovereignty (Mont, 9).

Extrapolating these observations from sustainable consumption to the investment and sustainability nexus takes no stretch of the imagination. The engine that drives forward such extrapolation is simple yet powerful: more consumption and investment are better. The economic neoliberalism to which the origins of unsustainable consumption are traced also lays claim to the origin of crucial disconnects between investment and sustainability. This applies to both forms of investment, portfolio and foreign direct, as do many of the ruminations in sustainable consumption thought. This close albeit conceptual cross-disciplinary application warrants closer examination.

Sustainable portfolio investment has been building traction over the last three years with latter half of 2019 alone witnessing billions of USD identified under the environmental, social and governance (ESG) investment label. There remain considerable limitations to the concept, the most pronounced amongst them being a lack of shared understanding and standards of ESG metrics and stewardship. The World Bank Group (WBG) and the UN Principles on Responsible Investment have been on the forefront of institutional efforts to address these concerns. Despite the wide involvement of national pension schemes, central banks and government regulation, policy instruments remain within the system optimization mindset that shifts responsibility to the actual sustainability element of ESG to the producer-consumer.

The result of a soft sustainability approach to regulating ESG has exposed it to systematic greenwashing. The mentality in ESG continues to be growth-oriented, investors financing asset managers based on perceptual cues and little understanding of metrics and their shortcomings. With the entry of large names in finance like BlackRock and MSCI or international organizations like the WBG and United Nations through the PRI, portfolio investors are eased into the lethargy of technological optimism. Morgan Stanley’s Institute for Sustainable Investing identified promising trends in the sustainable investment epithet, employing a definition of sustainable investing that was not only substantively vacuous but very much aligned to the central economic ideological tenets of growth-oriented market fundamentalism.

Moving outward to foreign direct investment and its governance does little to mitigate these concerns. Despite international investment law being based on a regime of treaties and treaty arbitration, which directly involves governments, investment, less considerations of sustainability in investment, find no prescriptive definition. Investors, which notably include shareholders of companies, are given rights and protections in the state recipient to that investment, such as access to investor-State dispute settlement (ISDS), but the means to determine the substantive qualities of investment remain ad hoc and left the judicial discretion arising from investment arbitration (See, for instance, Mihaly International Corporation v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/00/2; Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4; Malaysian Historical Salvors, SDN, BHD v. The Government of Malaysia, ICSID Case No. ARB/05/10).

While there is no single government to adopt and then apply a reflexive governance model to the multilateral regime of international investment law, the United Nations can and should play a larger role in taking more prescriptive, system transformative action to ensure that sustainability is not simply a spillover of investment, rather sustainability leads decisions of whether investment should be admitted.

About the author: Soo-hyun LEE is a Agenda 2030 PhD Researcher in international economic law and sustainable development at Lund University, a Private Sector Integrity Research Analyst at the UN Development Programme, and the head consultant at the Information Symmetry Law and Policy Group. His interests and expertise are in the law and policies of international investment, trade, finance, and their interaction with sustainable development. His doctoral dissertation examines the normative and procedural aspects of sustainable development in investment treaty arbitration and their larger development implications.

This article is the winner in an essay competition held by the UNCTAD YSI Summer School on Globalization and Development Strategies. Participants of the school worked with senior scholars to fine-tune their drafts, and the top-5 articles were published here. For other articles in the series, please click here.

About UNCTAD UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964. Its headquarters are located in Geneva, Switzerland, with offices in New York and Addis Ababa. UNCTAD is part of the UN Secretariat, reports to the UN General Assembly and the Economic and Social Council, and are also part of the United Nations Development Group.

Why do we need to transform economics, and how do we do it?

In a profoundly invigorating keynote speech, Professor Jayati Ghosh, Chairperson of the Centre for Economic Studies and Planning at the of Jawaharlal Nehru University, urges young economists to to take initiative and transform their discipline. Outlining eight problems with the status quo, and providing five clear ways to combat them, she inspires the next generation of economists to forge alliances, gather strength, and most importantly: be bold.

Keynote Lecture to UNCTAD-YSI Summer School 2020

By Jayati Ghosh | It’s truly a delight for me to be able to address the UNCTAD-YSI Summer School. This is not only because these are two groups that I have huge respect for and sympathy with. It’s also because the theme of this Summer School (“From the Transformation of Economics to Economic Transformation: Pathways to a Better Future”) is something very close to my heart, something I and some of my colleagues have been grappling with for decades. It’s really quite energising to realise that there are so many young people willing to engage in this project. So I am going to treat this as an opportunity for me to think through some of the concerns I have, in the hope that all of you are going to be the ones taking forward this transformation.

Mainstream economics, why do I not love thee? Let me count the ways.

First, a lot of it is simply wrong: that is, it is misleading about how economies work and the implications of economic policies and processes. For decades now, a significant and powerful lobby within the discipline has peddled half-truths and absolute falsehoods on many critical issues:

how financial markets work and whether they are or can be “efficient” without regulation;
the role and nature of fiscal policy and the implications of austerity;
what impact the deregulation of labour markets and wages actually has on employment and unemployment;
how patterns of international trade and investment affect livelihoods and possibilities of industrialisation and diversification;
the distributive effects of different macroeconomic policies;
the extent to which private investment responds positively (or not) to policy incentives like tax breaks and subsidies or negatively to increased government spending;
the effects of multinational investment and global value chains on producers and consumers in particular countries;
the ecological damage created by patterns of production and consumption;
whether tighter intellectual property rights are really necessary to promote invention and innovation;

And so on—I could go on and on, these are just some of the more evident examples, and you can probably think of many more if you just take the time to do so. But if these are so wrong, why is this not widely known, and how are they so widely propagated? This is done through a fearsome combination of explicit and implicit controls within the discipline (which I will talk about) and without in the wider world through media and by imbuing policy circles with these mistaken notions.

Some of this comes from the second major problem I have with the discipline: too much of it is in the service of power.

And the power that it increasingly serves is that of large capital and its supporting states: effectively the power of kleptocracy, at national and international levels. Many of the theoretical premises and empirical investigations of mainstream economics are conducted in ways that either divert attention from more critical issues, or assume them away, and thereby produce “results” and associated policy recommendations that reinforce existing power structures and imbalances. Therefore notions of exploitation of labour by capital and the unsustainable exploitation of nature by forms of economic activity, of labour market segmentation by social categories that allows for differential exploitation of different types of workers, of the appropriation of value, of the abuse of market power and rent-seeking behaviour by large capital, of the use of political power to push economic interests including of cronies, of the distributive impact of fiscal and monetary policies—all these are swept aside, covered up and rarely brought out as the focus of analysis. The deep and continuing concerns with GDP as a measure of progress are similarly ignored, and despite the conceptual and methodological flaws in its calculation, it simply continues to be used as the basic indicator to track, just because it’s there. All these slights of hand occur at the global level with regard to the international economic and financial architecture; they happens within countries at the level of macroeconomic policies; and they are evident in a lot of microeconomic analysis and in the development industry that claims to focus on poverty reduction.

Once again, you will all be able to find many more examples of this tendency from your own study and experience—but the problem is that often these tendencies to reinforce underlying power imbalances are not immediately evident unless we actively look for them. They are reinforced because they are simply assumed away in the modelling and not accounted for in empirical analysis. And then the discussion on theoretical models or econometric results is shifted onto a purely technical arena, that moves away from their relevance to the actual world or their viability in explaining economic phenomena.

This is related to the third big problem: the tendency to underplay the significance of assumptions in deriving analytical results, and most of all in presenting those results to a wider audience especially in policy debates.

Talk to most mainstream theoretical economists, and they will tell you that they have moved far away from the early neoclassical assumptions like perfect competition, constant returns to scale, full employment, etc., which bear no relation to actual economic functioning anywhere. But these assumptions still persist in the models that are explicitly or implicitly used to undergird far too many policy prescriptions, whether on trade and industrial policies, or macroeconomic policies or “poverty reduction” strategies. These are what give rise to so many of the myths that the next sessions are going to debunk. But because they are repeated so constantly, and because this repetition is done not only by the media but by people in authority, they get taken as axiomatic.

For example, across the world, there were Finance Ministers and other leaders who took it for granted that a public debt level of more than 90 per cent would result in a financial crisis—even though the empirical research that supposedly generated that result was quickly exposed as deeply flawed to the point that the result not only contained spreadsheet errors, but also vanished completely if just one country’s data were removed. While on that topic, it’s interesting to note that many of the governments in advanced countries, which had earlier refused to entertain the possibility of larger fiscal deficits to deal with unemployment because they would add to public debt, completely changed track when confronted with the pandemic. Suddenly large deficits were okay and rising levels of public debt were not a problem—not because the economics of this had actually changed, but because large capital and even finance capital now found it to be necessary.

Being in the service of power requires the enforcement of strict power hierarchies within the discipline, and a system of marginalising and disincentivising alternative theories, explanations and analysis.

This gives rise to the fourth problem: the power structures within the profession that reinforce the dominant (mainstream) thinking, even—and possibly especially—when it is less relevant and applicable.

One way this works is through the tyranny of “top journals” and their gatekeepers. Academic jobs, as well as jobs as economists in other organisations, are dependent on the applicant’s publications; these publications are “ranked” according to the supposed quality of the journal they are in, in a system that openly and aggressively keeps out journals that publish articles from alternative perspectives; promotions and further success in the profession depend on these markers, which in turn continue to disincentivise those who would like to extend their analysis or break away from this mould. Certainly, for young economists, there’s no doubt that professional incentive structures are heavily loaded in favour of staying firmly within the mainstream.

The fifth problem could have emerged from this: because of these pressures and incentives, many of the brightest minds are diverted away from a genuine study of the economy, to try to understand its workings and their implications for people, into what can only be called trivial pursuits.

Too many so-called “top” academic journals contain esoteric models that provide additional “value” only by relaxing one small assumption or providing a slightly different econometric test of some earlier versions. Yet in most cases they leave out some critical aspects that would actually provide a better understanding of the economic reality, because it would make it harder to model or because it might generate inconvenient truths. Since economists mainly talk to each other (and then proselytise their findings among policy makers) they are rarely forced to interrogate this approach. Instead, at the “apex” of the discipline, the more mathematically sophisticated the approach, the better it is taken to be. So economic forces that are necessarily complex, muddied with the impact of many different variables and reflecting the effects of history, society and politics, cannot be studied while recognising all this complexity. Instead they have to be squeezed into a mould that will make them mathematically tractable, even if this means that they cease to have any resemblance to the actual economic reality. This has gone so far that even some of the most successful mainstream economists have railed against this tendency—but with little effect so far on the gatekeepers of the profession. Given the seriousness of the economic and other problems facing humanity, and the importance of developing economic analysis and strategies to confront them, this is probably much worse than Nero fiddling while Rome burnt; it amounts to spending the time looking for little pieces of tinder to fan the flames.

This lack of interest in other disciplines has meant a major and growing impoverishment of economics, leading to the sixth concern. The lack of a strong sense of history (which should imbue any current social and economic analysis) is a major drawback.

Recently it has become fashionable for economists to dabble in psychology, with the rise of behavioural economics and the “nudgers”. But this too is very often presented ahistorically and without a sense of the varying social and political contexts that affect how people actually behave and respond in particular circumstances. Over several decades, this also led to a shift in the discipline away from trying to understand evolutionary processes and macro tendencies to a focus on the particular, to microeconomic patterns and proclivities that effectively erase the background and context that shapes economic behaviour and responses. And of course, the underlying and deeply problematic underpinning of methodological individualism remains: it is unfortunately still taken for granted, because (unlike those who began the study of political economy) so few economists go anywhere near a philosophical assessment of their own approach and work.

The short-termism and indeed short-sightedness, not just of some economists but also of the discipline as a whole also deserves to be highlighted, as the seventh problem.

It is true that John Maynard Keynes famously said “in the long run we are all dead”, but he also thought about “economic possibilities for our grandchildren”. But most contemporary economists, despite paying some lip service to issues like climate change mainly because they have to, display hardly any concern for issues that stretch into the future. The most egregious example of this is the inadequate factoring in of ecological damage and climate change concerns into assessments of policy choices and future trajectories.

How can economists keep doing this, making such huge blunders and ignoring so much essential reality? Partly because of the eighth problem: arrogance.

Economics is a very arrogant discipline, even though this is completely unjustified. Most mainstream (and male) economists are especially and appallingly arrogant, whether consciously or unconsciously so, and are either openly or subtly into hierarchies. This arrogance is just one of the reasons that Claudia Sahm (the macroeconomist who formerly worked with the US Federal Reserve) declared that “economics is a disgrace”. There is a marked sense of superiority and unwillingness to engage with and learn from other areas of knowledge, especially other social sciences and humanities, which are brushed aside as “soft”. Several economists who have done so and thereby hugely enriched their own analysis and their contribution to broader economic insights, have been displaced from standard Economics departments and relegated to Sociology or Politics, joining the “second division” teams rather than the front runners of the discipline in terms of perception.

There is of course a strong machismo to all of this, and so it is no surprise that a macho ethos permeates the mainstream discipline, just as an atmosphere of clever aggression dominates a lot of mainstream economics conferences. Male domination (similar to chimpanzee societies) has very much been part of this as well, whereby males compete aggressively with one another but also bond together and gang up to dominate over females. Some strong young women with voice in the profession are just beginning to make inroads into this—and more power to them! —but the spread of patriarchy is still vast and deep. It’s not just machismo, of course: the adverse impact of relational power also affects other socially marginalised categories, whether according to class, race, ethnicity, language, and so on. And then there is the huge impact of location: the mainstream discipline is completely dominated by the North Atlantic, whether in terms of prestige, influence or the ability to determine the content and direction of what is globally accepted in the discipline. Just as an example, all the 84 prizes awarded by the Swedish Central Bank Prize in memory of Alfred Nobel (falsely called the Economics Nobel Prize) have gone to economists resident in the North, and essentially living and working in the US and Europe. The North Atlantic still dominates in publications and in setting the research and policy agenda. The enormous knowledge, insights and contributions to economic analysis that are made by economists located in the Global South are largely ignored, almost certainly by those in the North, but even (sadly) by economists in other parts of the South. There is an even worse tendency in development economics, of treating the South as the objects of study and policy action (with its economists often becoming glorified research assistants in international research projects), while “real” knowledge is supposedly created in the North and disseminated outwards.

And finally, there is the proclivity of economists to play God. In perhaps no other discipline is there so much power to engage in what can only be called social engineering, couched in technocratic terms so as to make it largely incomprehensible to ordinary people who are told and persuaded that rigid economic laws make particular economic strategies the only possible choice. Increasingly, this attitude verges on or collapses into the unethical. The recent craze in development economics personified by the randomistas exemplifies this. There has been a lot of valid outcry and disgust about some Randomised Control Trials being conducted (inevitably) on poor people in the developing world, that have involved cutting off water supply to see if that incentivises bill payments, or checking whether poor parents will send only their better performing children to school once they are informed about their results. Clearly, quite apart from the numerous methodological problems with such studies, this shows the extent to which at least some economists have completely lost moral compass, and the strong class/region forces at work whereby the poor, and especially those in developing countries, can be experimented on in this way. The rot goes beyond those conducting such studies, to the research funders, the international organisations, the editors of journals and the university teachers who put such studies into their course material.

But I want to remind you that while such RCTs and the underlying neo-colonial attitudes they carry are certainly objectionable and distasteful, that this is only the latest example of economists playing God, trying out their pet theories of what will make economic processes change, often regardless of the impact on human lives. Think of the shock therapy so blithely imposed on Eastern Europe and the former Soviet Union, and the human tragedies they generated as well as the oligarchies they ultimately gave rise to. Think of the structural adjustment measures in Africa that reduced public health spending and created systemic fragilities that cost so many lives in previous epidemics like Ebola and have rendered health systems completely unfit to deal with the current pandemic. You get the idea: this is not the first time that economists have played with the lives and livelihoods of masses of people, secure in the knowledge that there will be no impact on their own safely distant lives and no accountability for their prescriptions.

So here’s the thing—economics is too important for the present and future of humanity to be left in this appalling state.

It’s certainly true that economics is too important to be left to economists, and that greater genuine economic literacy is required through society to enable people to call the bluff on supposedly technocratic decisions that only favour particular groups. But even within the economics discipline, we simply cannot let one stream, which is currently unfortunately the mainstream, dominate and colour everyone else’ views on how economies work. Fortunately, this is not the only stream: and over the course of the next few days you will be exposed to some of the finest minds who have made important contributions in developing realistic and applicable analyses of economic phenomena. It’s sad that we still have to refer to them and to ourselves as “heterodox” and “non-mainstream”, but that only reflects the power imbalances in economics and in economies, that I have already talked about.

So how do we change all this?

At first sight it appears almost impossible: the structures are so entrenched; the vested interests are so strong; there is so much at stake for global capital and the ruling powers that they will most certainly resist efforts to change. Let me also be honest and admit to you that I speak to you from a position of relative failure, as someone who has tried for nearly four decades but without much success, to make a dent in this power structure and to change both the content and the direction of the economics discipline to a limited extent. The need for drastic change in the discipline has never been so drastic and so urgent. We are facing major existential crises as a species; the global economy was already limping and fragile and is now effectively devastated by the latest blow of the pandemic; environmental threats are already translating into awful reality; inequalities that seemed impossibly large have grown even more, creating societies that will soon become dysfunctional to the point of becoming unliveable. All this requires urgent, major economic action. Yet mainstream economics persists in doing business as usual, as if tinkering at the margins with minor changes will have an impact on these fundamental problems.

The good news is that there are apparently winds of change blowing. The world— and the world economy—may be in an unbelievable mess, but we have more economists, especially young economists, recognising this and thinking about how to avert the immediate dangers and transform the future. There are movements that have been led by students, demanding that the discipline and the pedagogy change, like Post Autistic Economics that transformed into Real World Economics. There are hundreds of you who have registered for the Summer School from across the world, suggesting that there is a real intellectual hunger for change. The Young Scholars Initiative and similar groups have huge potential, and I’m hoping that many of you who are based in developing countries will also get more involved in International Development Economics Associates (IDEAs) to take that network forward in raising the voice and enabling exchange between economists based in the Global South.

It’s clear from my earlier interactions with YSI and some young dynamic economists who are at the forefront of these movements, that you don’t really need advice from people like me. Nevertheless, let me offer whatever little insight I have gleaned from my years of trying to do this.

First, something I think you all already know: diversity matters.

Diversity of gender, of race, of class background, of ethnicity and so on: these are essential to enrich the discipline and have now been widely commented on. Currently there is a raging discussion on social media about this, with expected pushback from those accustomed to their privileged positions. But there is also the aspect that is often overlooked, diversity of location, which I mentioned and which is also necessary for enriching the discipline. So I request all of you, in your own work, search out readings by scholars and economists from different parts of the world, even if your teachers have not made you aware of them. Fortunately, the internet now makes this much more possible than ever before. Be mindful of whom you quote or refer to when writing up your research. Don’t look only for “empirical validation” from Southern economists while taking your theoretical knowledge from the North: many economists based in the developing world have made far more insightful and profound contributions to economic understanding, even if they have not found a place in the so-called “top” journals and rarely find their way into reading lists.

Second, remember to be respectful of diversity of approaches, which is really what being “heterodox” is all about.

Recently there has been some discussion about whether this is a useful term at all, and a tendency to be slightly shamefaced about it, which I believe is completely misplaced. To me, a heterodox approach is defined by pluralism, which means that I may adopt a particular theoretical framework to understand how the economy works, but I should be willing to learn from other different approaches. The whole point is that we should be willing to engage with diverse perspectives and draw insights from one another without getting locked into sectarian squabbles. This doesn’t mean that we can’t have arguments, which are of course essential; only that we should try to be as inclusive as possible and encourage diversity in as many ways as possible.

Third, —and this is really important—don’t let identity substitute for analysis.

It’s essential to hold ourselves and our work to the highest standards of rigour and careful, systematic research. This rigour need not be mathematical, but it must be logical, and it must be empirically grounded and aware of history.

Fourth, don’t be too purist and don’t obsess about classifying everyone into their own little methodological boxes.

Try to make allies, across other disciplines, in wider society and also among mainstream economists who are beginning to see its limitations. In searching for and finding allies, it’s also necessary to make ourselves easily comprehensible as well, and not create a miasma of verbiage or formulas that can obscure the argument. In this regard, I have a simple “grandmother rule” for my students: you can be as complicated, nuanced and sophisticated as you like in your work, but ultimately you must be able to state your basic argument in words comprehensible to your grandmother (who is usually a very smart woman, even if she is not as educated in economics). Try it: it’s not as easy as it sounds.

Finally, be bold!

Don’t be afraid to ask awkward questions of anyone, don’t let anyone slap you down using the well-worn techniques of the socially powerful, don’t be intimidated by institutional hierarchies and power structures. The more fearless you are, the more you accomplish; and the more other people whom you can persuade to be fearless with you, the more unstoppable you will be. And also, I think, the more fun the whole process will be.

So here’s hoping that you will indeed be unstoppable and that this Summer School becomes another step in forging alliances and gathering strength to transform the discipline of economics and make it once more the moral yet worldly philosophy it was originally intended to be.

About UNCTAD | UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964. The organization is governed by its 194 member States and is the United Nations body responsible for dealing with economic and sustainable development issues with a focus on trade, finance, investment and technology. It helps developing countriesto participate equitably in the global economy. UNCTAD carries out economic research, produces innovative analyses and makes policy recommendations to support government decision-making.

UNCTAD YSI Summer School | Entitled “From the Transformation of Economics to Economic Transformation: Pathways to a Better Future”, this year’s summer school took place from August 15-23,2020. It’s aim is to connect the intellectual challenge of rethinking economic analysis to the practical challenge of building a healthier, more resilient, more equal and greener future for all.

Meet Lara Merling, a Young Scholar in Washington, DC

Every so often, we highlight one of the members of the YSI community. We share their story, their aspirations, and what new economic thinking means to them. This time, we cover Lara Merling, alumna of the Levy Economics Institute, co-founder of Economic Questions, and currently, Economic Research Officer at the International Trade Union Confederation (ITUC) in Washington, DC. This spring, Lara is helping members of YSI come together in DC to host various workshops.

How did you wind up in economics?

Pavlina Tcherneva’s class on Money and Banking converted many students to economics, myself included. It made me realize how economics and particularly economic policy defines so much of our lives. And as I advanced, I realized the issues in the discipline itself. All economics is political, but the models in our textbooks manage to hide their assumptions, and present themselves as objective science. In my masters degree, I studied not just the neoclassical models, but also their critiques, and many alternative ideas and approaches. I was able to do research that shows the failures of neoclassical economics, along with the real human costs that it’s policies (such as austerity) bring about.

How is it to work at the intersection of research and policy making in DC?

As an Economic Research Officer in the Washington office of the ITUC, which represents over 200 million workers globally, I draw on the insights from my research to advocate at the IMF and World Bank for better and fairer policies for working people everywhere.

That said, it’s not without difficulty. Policy makers tend to uphold economics as a precise and objective science. In reality, there are politics behind every economic model, and we should not pretend otherwise. One may expect that policy makers are in a good position to understand that, but there is still a widespread tendency to stick with the most widespread models, label them as “sound economics” and use them to justify a political agenda; tricky business when people’s lives depend on it.

Furthermore, when it comes to translating research into policy, much of the caution expressed by academics around the certainty of their conclusions is lost when policymakers give in to the temptation to cherry-pick findings, and emphasize those that support their agenda. This way, nuanced findings with various limitations can quickly turn into something that appears to be a solid fact.

To make matters worse, institutions such as the IMF and World Bank continue to glorify neoclassical economists, despite their poor track record in terms of predicting real world events, and helping countries actually develop. But much of my professors, who for decades have been marginalized by these institutions, have persisted in their work and seen their predictions proven right. They have stood strong, and continue to put their energy towards an economics that works for society, not against it. And I can draw upon them for inspiration when things feel like an uphill battle.

What are your hopes and dreams?

I am working not just to further develop my perspectives on the policy failures of neoclassical economics, but also to contribute to alternative frameworks that can address the big challenges of our time. One of the approaches I focus on in my work is that of prioritizing full employment and sustainable growth. Making these explicit goals changes the game for economic policy making. They provide a lens through which to explore new solutions to the challenges of our time.

My hope is for a world in which all economists learn about and engage with a variety of schools of thought, and have to argue their positions based on evidence and logical arguments, rather than theories taken for granted. We should all be aware of the history of economics and understand the institutions that we encounter in the real world.

Contact Lara Merling via the Young Scholars Directory.

Tackling Urban Homelessness the Green Way

The US housing affordability crisis is driving more and more of the working poor to live out of cars and squatter homes- the solution seems to be creating more affordable homes in both urban and suburban areas where there is a high level of homelessness amongst the working poor but this means more carbon emissions and pollution in urban areas the long run. A green alternative needs to be found if both homelessness and pollution are to be solved simultaneously.

By Athullya Gopi | The US housing affordability crisis is driving more and more of the working poor to live out of cars and squatter homes- the solution seems to be creating more affordable homes in both urban and suburban areas where there is a high level of homelessness amongst the working poor but this means more carbon emissions and pollution in urban areas the long run. A green alternative needs to be found if both homelessness and pollution are to be solved simultaneously.

Homelessness is a growing global phenomenon. In the United States (US), its rampant increase is most evident in urbanized areas along the East and West coasts. Homelessness in the US does not only occur as a result of an individual’s perceived social and economic problems such as mental health and substance abuse issues or the stagnation of incomes, it is also the result of long-standing imperfections in the private US housing market that prevent everyone in the economy who demands housing as a dependable and primary source of shelter from accessing it. Such market imperfections limit the number of affordable housing units supplied by the private sector to urban low or very low income households – often making such individuals or households highly susceptible to homelessness as both incomes stagnate and rents or home values spike. An ideal long-run solution to reducing this type of homelessness is to employ federally mandated policies designed to increase the supply of available affordable housing units to those needing dependable shelter. The idea of increasing the number of physical dwelling spaces in already congested and polluted urban areas, however, implies an added burden to carbon emissions and energy utilization in cities at a time when careful consideration needs to be given to the latter. Is there a green solution to solving homelessness caused by the housing affordability crisis in the US?

The rapid growth of urbanization is most evident in the rising number of people living in cities – by 2030 it is estimated that at least 27% of the world population will be concentrated in cities with a population of more than 1,000,000. It is also clear that the rapid growth of urbanization is increasingly becoming a contributor to global climate change – although cities only account for less than 2% of the earth’s surface 71 to 76% of the world’s carbon emissions originate from urban areas. The impact of climate change is being increasingly felt in urban areas including its homeless. Since 2016 the number of homeless individuals in urban areas perishing from being unsheltered in extreme climate conditions has been increasing.

However, it is not just in urban areas that homelessness is growing. Poverty and homelessness have been increasing in suburban areas in the US over the last 15 years. With homelessness on the increase as a social ill not necessarily constrained by population density or geography more and more households/individuals who find themselves chronically unsheltered as a result will also be directly exposed to the increasingly devastating effects of climate change. A sustainable and joint solution needs to be found to address both problems, one that envisions more eco-friendly homes for those who need them as a source of shelter when they have no recourse to one.

To start formulating such a joint solution we must begin with understanding the source of growth in homelessness over the last few decades. While foreclosures in the post-recession era have largely been responsible for people losing their owner-occupied homes, the source of homelessness relating to economic conditions extends beyond mere market forces that are freely operating. In the United States, the private housing market is an imperfect one, meaning that there are constraints imposed upon it that prevent demand and supply of housing from fully clearing. The imperfect housing market leads to renters being priced out of housing that is affordable when they are faced with either income shocks (like being made redundant when the economy goes down) or rental price shocks (when an upturn in the economy leads to a surge in property prices and therefore rents). This leads to a growing number of individuals/households that are at risk of becoming temporarily homeless. The Department of Housing and Urban Development (HUD) refers to such individuals as “transients”. Modern-day representations of homelessness are no longer restricted to the visibly homeless woman forced to live in her car while working as an adjunct professor and the army veteran who can only afford housing through a gofundme crowdfunding campaign. The housing crisis is one that is increasingly an affordability crisis.

The imperfect market leads to demand for housing persistently remaining relatively higher than the supply of available housing at any point in time. Often this mismatch between housing demand and supply is the result of the relative inelasticity (low sensitivity to price changes) of housing supply. Generally speaking when the price of a good or service increases, the supply of housing should respond over time by increasing too and vice versa. Housing supply, however, is relatively quite slow to respond to price signals due to a number of factors that do not directly impact the housing market. For example state regulations regarding land use vary across the United States and often favor the use of land in urban areas for commercial purposes rather than for housing, making it difficult to quickly increase housing supply in such areas in response to a sudden surge in housing real estate prices.

Additionally, the increasing use of housing real-estate as sources of investment leaves more and more units either vacant or used in a way that allows investors to gain higher than market returns – such as converting them to “AirBnB” units. This indicates that the market is biased towards those in the economy who demand housing real-estate as an investment good rather than as a basic form of shelter. This bias towards housing investors is clearly seen in urban areas by the rising levels of gentrification in cities – a way of making housing investments more attractive and therefore valuable to investors. Ultimately the existence of this bias means that richer entities/households that can afford to purchase or rent more than the one unit of housing they need for shelter gain access to the additional units they demand more readily than the relatively poorer households that need at least one unit for basic shelter. With a ‘sticky’ housing supply and a bias in how demand for housing is met, poorer households are ever more at risk of transient homelessness and not receiving at least the single unit of housing they require to meet their need for basic shelter.

Furthermore federal government safety nets for low income and very-low income households have been declining over the years instead of increasing: there have been no significant increases in federal housing voucher funding to make housing more affordable and more public housing units have been retired or demolished than built between 2000 and 2016 leading to an overall drop of around 200,000 units during this time. All of this implies a greater need for more physical housing units to be supplied outside of the imperfect private sector – to be made available ideally through federal government-led policy intervention that creates housing for the growing population of working poor that are most likely to be made transiently and then chronically homeless.

Increasing the supply of affordable housing to meet the real demand for housing as a source of shelter is only one half of a joint solution – the second half must resolve how to achieve this in a sustainable manner without adding to pollution levels. In this regard, special emphasis needs to be made on urban as opposed to rural areas mainly because the former are focal points of energy and durable goods consumption, both of which contribute significantly to the overall carbon footprint. For example, concentrated energy consumption in urban areas tends to create enough heat to change their surrounding microclimates, even causing them to differ in temperature on average by more than 1 degree Celsius than neighboring rural areas. Urban areas also generate undesirable runoff patterns in water – the way urban landscapes are constructed means that less water gets filtered back to replenish the local water table. At the same time urban areas, because of their warmer microclimates, generate more rainfall, meaning that run-off containing pollutants from industrial sites occurs more quickly and intensely than rural industrialized areas and significantly reducing water quality.

Innovative sustainable construction methods are becoming more popular. One example of a green construction standard is the Living Building Challenge, a green building certification program that outlines how sustainable built-up structures that are net water and energy positive (i.e. water is re-treated onsite and that more energy is generated onsite than consumed). This building standard was successfully used in a sustainable affordable housing project is present in Minneapolis. In 2015 two local nonprofit organizations, Aeon and Hope Community launched “the Rose”, a 90 unit mixed-income apartment complex with half the units assigned as affordable housing at a monthly rent of around $636 for a single bedroom apartment. What is remarkable is that the per square foot cost of constructing the Rose was less than a half that of a similar conventional high-end sustainable building. While it was 20% more expensive and more complicated to build than a comparable code-compliant building the Rose was intended to offer long-term cost-effectiveness by being up to 75% more energy efficient.

Affordable housing is largely not a favorable investment option for real-estate developers and so its sustainable development must be incentivized through policy change – one option would be through tax credits. However future policymakers must remain cautious about private investors using green building techniques in the name of climate change to deliberately ramp up property values.

Such an example appears in a case study of a multifamily residential property development supported by the City of Portland Oregon Department of Environmental Services. The latter is responsible for managing the city of Portland’s wastewater and stormwater infrastructure. In the Barrington Square Apartments project, the property owner retrofitted stormwater controls with greener technology that enabled the removal of more than 350,000 gallons of runoff with pollutants. While at first glance it appears that the Environmental Services Department that supported the project successfully promoted the implementation of green technology in the private sector to clean up of the environment, the project report indicates that the property owner was motivated to make these changes to increase the value of the property itself – an idea that is counter-intuitive to the expansion of sustainable affordable housing.

About the Author
Athullya is originally Indian, born and brought up in the United Arab Emirates. She joined the Levy Masters Program in 2016 after leading a successful career in credit insurance. The choice to swap her role as the head of commercial underwriting with that of a full-time student came after being inspired to see how Economics works in the real world. She now works at the Institute for New Economic Thinking in New York.