A collage of images, featuring most prominently a person holding a sign reading "no justice no peace"

Category: Distribution

Distribution / Old Blog

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Equal Suffering: for a just distribution of airplane flight routes

There is a long-standing debate in Belgium over the choice of flight routes around the national airport located northeast of the capital, Brussels. A plan last year that reorganized departure routes, routing the majority over densely populate areas of the capital, was met with strong protest from Brussels residents who now had to endure noise nuisance they didn’t have under the previous routes. Noise nuisance from airplanes is, according to recent studies, linked to an important increased risk (10-20% higher likelihood) of stroke, coronary heart disease, cardiovascular diseases, and death. Assuming 1) that there is an unavoidable amount of flights above populated areas and 2) that it is impossible to fully deaden the noises thereby engendered, what would constitute a just distribution of flight routes? In other words, what is a just distribution of suffering and risks caused by plane nuisance? In this post we present three possible answers and defend one of them.
 
 
 
 
1.      Fair distribution of costs and benefits through the market
 
One answer to the question is to say that the market already fairly allocates the benefits and burdens associated with living under established flight routes. Rents and property prices reflect the distribution of preferences that people have when it comes to the trade-off between noise pollution and money. This approach would favour policies that maintain the status quo and reject introducing any changes in flight routes given that choices were made and expectations were built around a stability of flight routes. We see two problems with this approach. Firstly, we do not think that the choices made by some individuals to live under the flight routes are genuine choices that reflect their preferences. On the one hand, information about the health costs of airplane nuisance was not available till recently (2013). On the other hand, there is the worry that many individuals have no option but to take up residence under flight routes thereby sacrificing or risking their health not because of a preference for money but because properties in those areas are the only ones they can afford. Secondly, even if we were to be certain that choices of all individuals were genuine or to disregardvoluntariness, a problem remains with regards to the consequences those choices have on third parties, in this case the children of those who opt for health risks in exchange for cheaper rent.
 
2.      Minimization of total suffering
 
A second answer says a just distribution is one that minimizes total suffering. The argument that flight routes should be organized such that airplane nuisance affects the least number of people is popular and intuitive. It favours policies that concentrate flights over the least populated areas. This approach relies on utilitarian reasoning, and although electorally attractive, it suffers from the classical objection to utilitarianism: it sacrifices the welfare of part of the population for the aggregate welfare.
 
One could argue, however, that offering compensation to the victims (those who live under the flight routes) can address this objection. By compensating the victims we show concern for their suffering and balance out the loss in wellbeing incurred by the noise pollution. The compensation can take the form of an offer for relocation or monetary compensation. Yet, we think this response suffers from the same problems as the first answer which relies on compensation through the market. The worry is that some might opt for monetary compensation and hence nuisance and health risks because they are economically disadvantaged and that their choice at any rate unfairly impacts their children. We recognize that forced relocations could be one way to counter this worry. Nevertheless, we think it is problematic as it imposes the burdens of relocation on only part of the population making it open once more to the initial objection of sacrificing the welfare of some for the aggregate welfare.
 
3.      Equalizing suffering and risk
 
The answer we favour to the question of just distribution of nuisance and health risks is one that advocates an equal sharing of the burden because it considers it unjust to ask some to endure suffering or risk their health for the aggregate welfare. The policy favoured by this approach would be maximal dispersion of flights. Of course, maximal dispersion is only a proxy for equal distribution of burdens for there will be inevitable inequalities. Equalizing risk is impossible; those living close to the airport will be more affected than those living farther. Maximal dispersion can be complemented by forced relocation (for those areas where the risk is highest) and compensation (although the same concerns about compensation above apply)The principle of equalizing suffering and risk might strike many as counterintuitive. Don’t we by maximal dispoersion simply subject a higher number of people to nuisance and risk than would have been the case under concentration policies? We stand by this principle, however, because we think it is the only one that treats everyone as equal and expresses equal concern/respect to each. Unlike the utilitarian argument, it can be justifiable to each individual. And, we think that justifiability to all trumps efficiency considerations. 

That said, we note that a utilitarian appraoch might also support a policy of dispersion if we take into consideration the following two reasons. First, the negative impact of noise pollution is non-linear (the nuisance of two planes is higher than twice the nuisance of one). This means that concentration does not necessarily minimize aggregate suffering. Second, a policy of maximal dispersion might be highly effective in making a substantial number of citizens aware of the nuisance and dangers of airplane noise which could ultimately lead to more effective lobbying to reduce air traddic and find radical alternative solutions.
 
 
Siba Harb and Pierre Etienne Vandamme

Distribution / Duties / Economics / International / Old Blog / Rights

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Taxing FIFA: Asides from having their board room modelled on the war room from doctor strangelove, are there any other reasons as to why FIFA should be taxed?

Some have called it the best football World Cup ever. And it has indeed been incredibly exciting.[1]Yet the circumstances which brought us the event (and will bring us future ones) are very troubling. For a year now, there has been widespread anti-World Cup protests and riots in Brazil crying against the high cost of the event for Brazilian citizens. Investigationshave revealed the slave conditions migrant workers building the 2022 World Cup infrastructure are subject to in Qatar. At the same time, there has been renewed criticism directed at FIFA, football’s international governing body. There are corruption scandals, FIFA’s dismissive attitude to the Brazil riots, their inaction on the Qatar front, and then there is the tax issue.
FIFA demands from any country who wishes to bid for hosting the world cup full tax exemptions for itself and its subsidiaries and tax breaks for its official sponsors. Estimates are that tax exemptions in Brazil, for instance, will cost up to half a billion dollars.  To many this sounds outrageous (see video).  And so it does to me.
John Oliver on Last Week Tonight tells us perfectly why we should hate FIFA
But why exactly is it outrageous?
Some, including FIFA and the Brazilian government, have argued that the country hosting the World Cup stands to greatly benefit economically from the infrastructure investments and tourism, a benefit that surpasses the amount of tax exemption in question.  Whether such forecasts about the benefits to the host country are correct is highly contestedas these rosy forecasts do not take into consideration many indirect social and economic costs (worker deaths, security costs, crowding out other tourists, etc…)An indication that hosting events such as the World Cup is unattractive even to the richer countries is the fact that only three European countries bid to host to the European Championship in 2020.

But is the issue only a question of mutual benefit? Surely we don’t expect countries to provide corporations or investors with full scale tax exemptions on the account that they generate net benefits to the economy. Countries are perhaps often forced to provide incentives for investors and corporations due to tax competition but this is reason to call for more global tax harmonization. And whereas companies and investors competing against one another may, in at least some way, be justified to seek conditions that render them competitive FIFA has no competitor. It is the sole body responsible for organizing the World Cup. And, it is a non-profit organisation.
Perhaps it being a non-profit organization can actually justify the tax exemption. After all , it is common, and we often think laudable, to exempt non-profit organization from taxes. The fact that FIFA actually makes a lot of profit (in 2012 it was $ 89 million)  often raises eyebrows, but I don’t think this is in itself the issue. What makes an organization non-profit is not that it doesn’t make profit but that it does not distribute its profits or dividends to shareholders and instead uses its profits to further achieve or promote its goals.

We definitely have some good reasons to exempt some non-profit organizations from taxes irrespective of the profit they make or the net economic benefit that accrues from their activities. We do, for example, want to have organizations that track human rights abuses. Evidence that they make huge profit or that their net financial benefit locally or internationally is negative is not reason against exempting them from taxes as long as we know that their profits are being invested to pursue their aims. To the contrary, the more profit they make the better!
Protecting and tracking human rights abuses is an aim we want to pursue even at a large financial cost. Yet, it is not clear that this applies to the variety of aims pursued by the variety of non-profit organisations. It is certainly not clear when it comes to FIFA whose aim is to promote sports and football. Yes, there are the commitments to anti-racism and anti-discrimination, but there is little done to prove them more than slogans. Perhaps if serious effort were being done to promote those aims; if FIFA for instance were to be a driver for labor law reforms in countries like Qatar; or if it were successful in promoting other humans rights (say the right of children in poor countries to play in safe environments) then this could be good reason to exempt them from taxes. That said, even if such were the case, the tax burden ought not to fall on the hosting country but be fairly distributed on the international community.
Absent such aims, the question of whether promoting football is a ‘worthy’ pursuit, perhaps like the question of promoting some forms of art, ought to be settled democratically. This would exclude non-democratic countries from bidding for the world cup, but that doesn’t strike me as an outrageous conclusion.

[1] Until the last of three teams I supported returned home, that is.

Distribution / Economics / Old Blog

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What’s Mine Is Yours, or Is It?

In the past few years we have all become familiar with the idea of the ‘sharing economy’ and this is true even in the absence of a clear-cut definition of it. If I asked you to name some examples of the ‘sharing economy’, your list would probably include Wikipedia, Spotify, Linux, airbnb, ebay, Mendeley. This, I believe, has to do with the fact that there is nothing much new about the logic that grounds it: we have all experienced practices of renting, lending, swapping, bartering, gifting and we have all shared spaces, meals, textbooks, opinions, skills, knowledge, etc. with others. We engage in such practices for various reasons: sometimes it is because we simply cannot afford to buy, and access, rather than ownership, is a more viable option. Sometimes we prefer to re-use unwanted items than to throw them away because, in this way, we reduce the production of waste and, with it, our carbon footprint– all of which seems like a good idea in a world of scarse resources and increasing levels of pollution. Some other times sharing is just more enjoyable; it creates or fosters relationships with other people, and often it leads to new uses and innovative ideas. So, what is different now? Why do we come across a number of articles and blog-posts talking about the rise of the “sharing economy”? And what has turned ‘sharing’ into an ‘economy’ proper?
 
Digital technology, and the advent of Web 2.0 in particular, appears to be the main driver of this transformation. It’s not just that ‘sharing’ seems to be the fundamental and constitutive activity of the Web 2.0, and especially of social networks (John 2013); the Internet is also changing the way in which we engage in the ‘old’ practices of sharing. This is evident if you consider how easy access to the Web 2.0 scales-up the pool of potential ‘sharers’, and the amount of information about them, thus decreasing the high transaction costs associated with more traditional forms of sharing. In other words, the Web 2.0 allows the creation of systems of organized sharing both in the production (i.e. commons-based peer production)and consumption mode (i.e. collaborative consumption).
 
By leveraging information technology and the empowerment opportunities it makes available, the ‘sharing economy’ would seem to advance a new socio-economic model, where the production, exchange and consumption of goods and services is based on horizontal networks and distributed power within communities, rather than on the competition between hierarchical organizations. This seems like a valuable characteristic. And, indeed we find that much of the enthusiasmabout the sharing economy is generally expressed through the egalitarian language of cooperatives and civic groups. It invokes values like the dispersion of power, sustainability, community-level connectedness and solidarity, the opposition to hierarchical and rigid regulatory regimes in favour of peer-to-peer (P2P) schemes (e.g. “What’s Mine is Yours: The Rise of Collaborative Consumption“). 

But, does this mean that the sharing economy is also changing capitalism from within? Are we all witnessing a switch to a “camping-trip” type of economic organization? Is the Web 2.0 really fostering an egalitarian ethos in our societies? Or is the sharing economy just the hi-tech version of the invisible hand?
These are of course big questions and answering them requires more empirical evidence and critical reflection than I can provide here. That said, I would like to offer one critical insight, precisely about the appropriateness of describing the ‘sharing economy’ as an egalitarian practice. To do so, I will focus on the consumption side of it and the reason is that I find the egalitarian narrative surrounding collaborative consumption more troubling than that of commons-based production.

Solidarity without reciprocity? Often the egalitarian character of collaborative consumption is justified by drawing a comparison with economic systems like the gift-economies. What they have in common is that they are solidarity-producing or enhancing practices. But there is a crucial difference. In gift economies the act of gift giving was meant to be reciprocated: it created obligations to respond in kind and these mutual obligations were the ties that bound society together. Collaborative consumption does not seem to work like that: benefitting from what is shared through the Internet does not create an obligation to reciprocate, and the increasing involvement of capital in the sharing economy (e.g. airbnb has now raised more than $300M in investments) is rapidly substituting reciprocity-driven initiatives with entrepreneurial ones.
Indeed, the more collaborative consumption goes mainstream, the more it becomes just a new business model for large companies. Even when the language and rhetoric of sharing is maintained, what characterized platforms like airbnb and Lyft is the profit-seeking of shareholders, rather than the egalitarian solidarity of more traditional forms of sharing, such as gift giving. With this I am not suggesting that the idea is to be abandoned altogether, but that we should be more prudent in welcoming it as a practice that fosters our egalitarian inclinations. It also means that we should be more attentive to the quick developments that the ‘sharing economy’ is undergoing: indeed, there is very little egalitarianism in tactics like those of “surge pricing” (rising the price of a ride in busy times or during bad weather conditions in order to attract more drivers on the road) that Lyft and Uber have adopted recently.

Distribution / Economics / Old Blog / Rights

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What is the value of (even fair) equality of opportunity in an unjust society?

People across the political spectrum care a lot about social mobility. For instance, a recent BBC documentary entitled ‘Who Gets the Best Jobs?’, about how little upwards mobility there is in the British society today, seems to have hit a nerve – judging form the large number of views on youtube but also form the large number of passionate comments from the public:

And there are people who would equate perfect social mobility with justice, and who therefore deplore its absence as the most worrisome form of injustice today.

I assume this is so because equality of opportunities of one form or another is a very widely accepted political value today. Why would anyone be against fair chances? For people on the right, the principle of equal opportunities embodies an ideal of meritocracy which in turn promises that desert will be rewarded. Those on the left are keen on a version of the principle designed to condemn as unjust the obstacles that class (and other kinds of social inequalities) pose in front of individuals’ efforts to obtain socially desirable positions. For instance, John Rawls‘ principle of fair equality of opportunities(henceforth FEO) requires this: ‘[s]upposing there is a distribution of native endowments, those who have the same level of talent and ability and the same willingness to use these gifts should have the same prospects of success regardless of their social class of origin.’ The rest of this post explores the value of this version of the principle.
One of the most compelling reasons for valuing FEO is the belief that it is unfair when factors such as the level of education or wealth in one’s family of origin determines one’s chances to lead a good life. This reason is either unstable or less compelling than it seems at first glance. If it is interpreted to say that how well someone’s life goes ought not to depend on factors that are outside her control and for which she cannot be held responsible, then the principle is unstable: we are as little responsible for our native talent, and, possibly, for our ambition, as we are for our parents’ money and education. If it is interpreted to say that people deserve to reap and keep the benefits of their talents the principle is contentious precisely because people have no merit in being born with particular native talents.
Here is an illustration: imagine that two children have an equally strong desire to get a job and that occupying it will contribute equally to their overall wellbeing; one is more talented, while the other has more parental support. If we bracket the question of the social utility of that job being occupied by one, rather than the other, person, does it make any moral difference which of the two gets the job? In any case there will be a winner and a loser, and in any case a form of luck will dictate who is who.
You may think that the issue of social utility ought not to be bracketed. A second ground for valuing FEO is that the ideal of meritocracy it embodies makes possible various kinds of excellence that all of us have reason to desire (who does not want to be served by competent doctors or civil engineers?). This reason has more weight when in comes to selection for some occupations than for others, and it may be often irrelevant in an unjust society. There is some reason to want, all other things equal, that the people who are most talented for medicine (amongst those who wish to practice it) become doctors. But with respect to other professions that are sought after, ‘good enough’ will probably do (say, when it comes to who ends up practising civil law.) FEO is not necessary to avoid the social disvalue of incompetent individuals landing jobs where they can do harm. A method of eliminating candidates below a certain threshold of competence will do.
An even more important point here is that people who live in unjust societies have reasons not to want the most talented people to occupy those desired positions that are connected to the exercise of power. The most talented lawyers serving a corrupt legal system are likely to do more damage than more mediocre ones; the most talented conservative politicians will be most efficient at keeping in place unfair institutions; and similar things can be said about the most talented bankers, tax advices and top managers working in unjust societies.
One last thought on why it is not socially useful if the most talented land the best paid social positions in unjust societies: such societies tend to have mechanisms that harness talent in the service of a well-off minority – one such mechanism is, obviously, better pay. To take again an example from medicine, much research talent is currently used to seek cures for trivial conditions that afflict mostly the rich. There is no social utility in the most talented researchers who compete for these positions getting them. Therefore (and other things equal) it is far from clear that FEO in an unjust society contributes to the maximisation of social utility.
Third, FEO can also be instrumental to improving the situation of the worst off. In Rawls’ theory of justice FEO is nested in a more complex principle, demanding FEO to regulate the competition for desirable social positions in a society whose basic institutions are organised to ensure that the worst off members of society are as well off as possible. If the most talented individuals occupy the best rewarded social positions in a well-ordered society, this will supposedly lead to the maximisation of the social product. As a result, everybody, including the worst off members of society, will end up better off than the would if other, less talented individuals were to occupy those positions. This is the meritocratic component of FEO. The best results in this sense will be achieved if individuals can develop their talents equally, unencumbered by their class, gender, race etc. This is the fairness component of FEO. In this justificatory story, the value of FEO is entirely dependent on its operation in an otherwise distributively just society. Rawls himself came to the conclusion that the realisation of the difference principle requires market socialism or property owning democracy. One may dispute this, but few dispute that current societies fail to realise the difference principle. How important is it to make sure that people have fair chances to win unfair competitions?
So, it seems a mistake to worry too much about social mobility. We should be a lot more worried about substantive inequalities than about the distribution of chances to end up as a winner rather than as a loser.

Distribution / Economics / Old Blog

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Supply, investment, and the allocation of scarce goods: How not to argue against rent control

Access to affordable housing is widely recognized as a basic right or, at the very least, an important moral interest. At the same time, residents of many major cities are faced with spiralling housing costs. London provides a particularly striking example. During the last year alone, average rents in London rose by more than 10 percent. Since this figure describes an aggregate trend, rent increases faced by individual tenants are often significantly higher. (When the last flat that I lived in changed its owner, the rent went up by 30 percent, notably without any changes to the condition of the property.) In light of this situation, it is no surprise that calls to address the problem of rising rents have become louder. 

One straightforward way of addressing the problem would consist of policies that place legal limits on the extent to which rents may be increased. Yet, the idea of rent control faces outspoken opposition. Opponents often defend their view by pointing out that rising rents have an underlying cause in the shortage of supply of housing in a given area. Constraining rents, they argue, does nothing to alter the shortage of supply or, worse, exacerbates it by reducing the returns on investment for property developers, thus undermining the economic incentives for an increase in supply. This line of argument, however, appears unconvincing. 

Shortages of supply in housing cannot easily be solved in the short term and are partly determined by geographical factors that cannot be altered at all. To the extent to which rent control policies fail to address the underlying problem of supply without worsening it, why should they not be considered as an interim measure? It is, of course, easy to conceive of policies that would further exacerbate the problem, for example if they took the shape of absolute rent ceilings that would make it impossible for developers to recoup their investment. There are, however, obvious policy alternatives that would place limits on rents and rent increases while being flexible enough to ensure a sufficient return on investment. In fact, if policies were structured such that returns on investment in new developments are higher than returns on investment in existing properties, they could create additional incentives for the construction of new homes, rather than undermining them. The very lack of rent controls, in turn, can be seen as compounding the imbalance between supply and demand in that it creates demand for existing properties on the part of speculative investors that would not exist if rent controls limited the returns on speculative investment. 

A further prominent argument against rent controls, even if understood as second-best or interim measures, relies on the appeal of free markets as a mechanism for the allocation of scarce goods. If a good is in short supply and prices are left to move freely, they will rise up to the point at which an equilibrium is reached between the amount of goods available and the amount demanded at the price in question. From the point of view of economic theory, this process is often considered to be attractive on the basis that it ensures that scarce goods are allocated to those who value the good most highly. If the price was artificially kept low, in contrast, the allocation of goods would be determined by factors that may be less normatively appealing or left to pure chance. Applied to the present context, if there is a shortage of housing in a given location, would it not be a morally attractive outcome if tenants with the strongest preference for the location would get to live there? 

Maybe it would. As an objection to the regulation of real-world housing markets, however, the argument is fundamentally flawed. The claim that equilibrium prices allocate goods to those who value the good most highly is plausible only in conjunction with the idealised assumption that the bidding parties are roughly equal in their ability to pay. In a real-world context in which potential tenants differ significantly in their wealth and thus their ability to pay, differences in willingness to pay rent cannot be taken as a direct reflection of the subjective value that a give property has to them. Since the absence of rent control measures does nothing to ensure that housing is allocated according to strength of preference, the appeal to this allocative ideal cannot serve as an objection against rent controls. 

In the absence of other arguments, the controversy about rent controls appears to boil down to a conflict between the interest in affordable housing on the one hand, and the interest of property investors on the other. It seems clear to me that the interest in affordable housing is the morally weightier one. This is not meant to deny that investments made under existing rules may give rise to legitimate expectations. Honouring such expectations, however, should not prevent us from changing rules that apply to future investments.

Distribution / Education / Old Blog

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Higher Education Pay Disputes and Industrial Action

It has recently been announced that University pay for academic and senior professional staff in UK universities has fallen by 13% in real terms since 2009, despite students’ tuition fees having trebled over the same period. The University and College Union (UCU) assert that a consequence of this is that pay for academic and senior professional staff ‘will fall still further behind the cost of living’. In response to this, members have pursued industrial action in order to attempt to secure fairer pay offers. Should we support this industrial action?
 
 
I think that there are four types of reasons that can be offered in defence of supporting the strikes, though I am unsure of how decisive any of these are, even in combination. The first reason is the one most explicit in the UCU’s literature. It relates to the fact that academic and senior professional staff ‘are being asked to work harder and take home less money to their families year after year’. This is thought to be particularly objectionable given the vast pay increases witnessed by Vice-Chancellors and Principals. This reason is a poor one. The vast majority of academic and senior professional staff in universities live very comfortable lives, getting paid generous salaries for work that they in general enjoy doing. In essence, I simply struggle to understand how an academic who earns an annual salary of £30,000+, which is comfortably above the average in the UK, can have that much of a complaint against being asked to work harder and take home less. 
 
A second reason relates more specifically to the pay of junior academic staff and graduate students. These people, who typically take on the brunt of teaching, are notoriously under-paid. Perhaps this provides an argument in defence of supporting the strikes. I am not convinced by this argument either. My sense is that junior academics and graduate students are in general very talented people who have many more opportunities open to them than most. I appreciate that getting by can be tough, but when they complain about the state of their pay my gut reaction is to say ‘Well, if you don’t like it, do something else!’. To those with some familiarity with contemporary political theory, I am tempted to say that academia is in an important sense just like an expensive taste.
 
A third defence relates to the pay of non-academic members of staff including, for example, the pay of cleaners, porters, administrators, etc. There is a much stronger cases in defence of protecting further their interests. The problem with this, though, is that, as far as I can tell, this is not one of the aims of recent industrial action. Notably, for example, the UCU represent only academic and senior professional staff in UK universities and much of their literature discussing these issues makes no reference to the pay of non-academic members of staff. It is not clear, therefore, the extent to which the strikes will further this goal.
 
The fourth reason is suggested by this statement made by the UCU: ‘If the pay cuts don’t stop and the universities do not start to invest some of the amassed money into tackling the issue of falling pay, the quality and reputation of our higher education system will suffer’. On this reading, the justification for industrial action is not (principally) self-interest; rather it is partly out of a general concern to protect quality in higher education. (The fact that those on strike stand to gain financially from doing so is simply a convenient coincidence!) In order for this justification to prove decisive, it must be both that quality in education is (strongly) correlated with the pay of academic and senior professional staff, and that this would be the best (feasible) use of the money. Both of these claims can be doubted. 

As someone who considers themself on the political left, I am generally sympathetic to the use of industrial action. However, in this case, I am yet to be persuaded. What do you think?

Distribution / Economics / Old Blog

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Scoring For Loans, or the Matthew Effect in Finance

Scoring for loans, or: the Matthew effect in finance
 
 
source: wikipedia
Last year, we moved to a lovely but not particularly well-off area in Frankfurt. If we applied for a loan, this means that we might have to pay higher interest rates. Why? Because banks use scoring technologies in order to determine the credit-worthiness of individuals. The data used for scoring include not only individual credit histories, but also data such as one’s postal code, which can be used as a proxy for socio-economic status. This raises serious issues of justice.
Sociologists Marion Foucarde and Kieran Healy have recently argued that in the US credit market scoring technologies, while having broadened access, exacerbate social stratification. In Germany, a court decided that bank clients do not have a right to receive information about the formula used by the largest scoring agency, because it is considered a trade secret.
This issue raises a plethora of normative questions. These would not matter so much if most individuals, most of the time, could get by without having to take out loans. But for large parts of the population of Western countries, especially for individuals from lower social strata, this is impossible, since labour income and welfare payments often do not suffice to cover essential costs. Given the ways in which financial services can be connected to existential crises and situations of duress, this topic deserves scrutiny from a normative perspective. Of course there are deeper questions behind it, the most obvious one being the degree of economic inequality and insecurity that a just society can admit in the first place. I will bracket it here, and focus directly on two questions about scoring technologies.
1) Is the use of scoring technologies as such justified? The standard answer is that scoring expands access to formal financial services, which can be a good thing, for example for low-income households who would otherwise have to rely on loan sharks. Banks have a legitimate interest in determining the credit-worthiness of loan applicants, and in order to do so cheaply, scoring seems a welcome innovation. The problem is, however, that scoring technologies use not only individual data, but also aggregative data that reflect group characteristics. These are obviously not true for each individual within the group. The danger of such statistical evaluations is that individuals who are already privileged (e.g. living in a rich area or having a “good” job) are treated better than individuals who are already disadvantaged. Also, advantaged individuals are usually better able, because of greater “financial literacy”, to get advice on how they need to behave in order to develop a good credit history, or on how to game the system (insofar as this is possible). The use of such data thus leads to a Matthew effect: the have’s profit, the have-not’s lose out.
         There are thus normative reasons for and against the use of scoring technologies, and I have to admit that I don’t have a clear answer at the moment (one might need more empirical data to arrive at one). One possible solution might to reduce the overall dependence on profit-maximing banks, for example by having a banking system in which there are also public  and co-operative banks. But this is, admittedly, more a circumvention of the problem than an answer to the question of whether scoring as such can be justified.
2) Is secrecy with regard to credit scores justified? Here, I think the answer must be a clear “no”. Financial products have become too important for the lives of many individuals to think that the property rights of private scoring companies (and hence their right to have trade secrets) would outweigh the interest citizens have in understanding the mechanisms behind them, and in seeing how their data are used for calculating their score. In addition, social scientists who explore social inequality have a legitimate interest in understanding these mechanisms in detail. It must be possible to have public debates about these issues. Right now, the only control mechanisms for scoring agencies seems to be the market mechanism, i.e. whether or not banks are willing to buy information from them. But one can think of all kinds of market failures in this area, from monopolies and quasi-monopolies to herding behaviour among banks.
      One might object that without trade secrecy there would be no scoring agencies at all, and hence one could not use scoring technologies at all (note that this only matters if one’s answer to the first question is positive). But it seems simply wrong that transparent scoring mechanisms could not work. After all, there is patent law for protecting intellectual property, and in case this really doesn’t work, one might consider public subsidies for scoring agencies. The only objection I would be worried about would be a scenario in which transparency with regard to scoring agencies would reinforce stigmatization and social exclusion. But the problem is precisely that this seems to be already going on – behind closed doors. We cannot change it unless we open these doors.

Distribution / Economics / Health / Liberty / Old Blog

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Capping Working Hours

Recently, the scandalous decisions of some investment banks to treat their employees like human beings by suggesting they take Friday nights and Saturdays off has raised much debate amongst financial journalists and their ilk.
The issue of long working hours is not limited to investment banks; a survey in the US of 1000 professionals by Harvard Business School found that 94% worked fifty hours or more a week, and for almost half, working hours averaged over 65 hours a week. With the increase of automisation in production chains moving labour into customer facing service roles, more individuals will likely face this challenge in their daily lives.
There are good reasons to think that these hours are not useful at all. Economists have long known that as working hours increase, the marginal production of workers fall – mistakes increase and the quality of work produced falls.
More importantly than the impacts on productivity however, are morally relevant considerations that are related to cultures of long working hours:
Industries with long working hours are typically biased in favour of those who do not have other commitments which limit their available time – most notably child care and currently, in our society, this means women. Economist Claudia Goldin finds that gender gaps in wages are greatest in those industries which exhibit “non-linear pay structures” – essentially those in which individuals who can work extremely long hours are disproportionately rewarded. This describes most jobs in the corporate, financial and legal worlds.
There are important health implications of longer working hours with significant evidence that those who work longer than 48 hours a week on a regular basis are “likely to suffer an increased risk of heart disease,stress related illness, mental illness, diabetes and bowel problems.”
Finally there are various employment related issues worth considering – for example would unemployment be decreased if each 100 hour-per-week job were split into two of 50? Would such a policy help reduce the concentration of power in organisations as key managerial tasks would likely have to be increasingly shared?
While our society may gain significantly from moving away from working long hours, it will always be incredibly difficult for any firm to act unilaterally in this matter due to substantial co-ordination failures in this area.
The appropriate response, I believe, is for Government to intervene with a hard cap of 48 hours per week that applies across almost all industries, with no built in exceptions beyond those which are absolutely essential. The current EU working times directive which is supposed to provide a similar function, is farcical in its ability to constrain individuals from working, due to the amount of exceptions and opt out clauses built into it.
A hard cap of 48 hours would be hard to implement, would have some uncomfortable implications (for example – forcing individuals who enjoy their jobs to go home and stop working) and would likely have some negative consequences on the economy. However there would seem to be substantial positive gains to be made and I believe that these are large enough to justify developing such a cap.

*Update: Marxist economist, Chris Dillow, has an excellent post describing how problems like long working hours can naturally arise without actually benefiting anyone.

Distribution / Economics / International / Old Blog

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Ethical trading as profit sharing: An alternative perspective on the terms of international market transactions

The increase in cross-border trade around the world during recent decades has been accompanied by a growing concern with the terms under which international market transactions occur. The claim that these terms are often morally problematic has come to play a prominent role in theoretical debates as well as in political initiatives such as the Fairtrade movement. While it is not always clear what the exact normative basis for this claim is taken to be, defenses most commonly focus on the low absolutelevels of welfare enjoyed by trading parties in developing countries. My aim in this contribution is to suggest that this focus tends to ignore what appears to be a justified independent concern with the relativedistribution of the economic benefits that result from international market transactions.
According to what appears to be the predominant perspective, the terms of international market transactions are morally problematic if they leave one of the trading parties badly off in certain absolute terms – for example, if the price that producers of coffee or other agricultural commodities are being offered is insufficient to provide for even their basic needs. Common as it is, this perspective faces a well-rehearsed objection. First, badly off as a party may be in absolute terms, she typically derives an economic benefit from the transaction; and second, it is not obvious why the mere act of engaging in a mutually beneficial exchange with a party that happens to be badly off should be taken to give rise to a particular (role-specific) responsibility for that party’s absolute level of welfare.
For the present purpose, I am going to set aside the question of whether this objection is successful or whether transacting parties can indeed be held responsible for each other’s absolute welfare. Instead, I am going to present an alternative perspective on the evaluation of the terms of market transactions that is immune to the mentioned objection and that seems to be neglected in current debates. According to this perspective, trading parties have a responsibility to transact at a price that ensures that each of them receive a fair share of the economic benefits that result from a transaction.
In rough terms, the argument in support of this view takes the following shape. International market transactions represent a form of mutually advantageous cooperation: they are typically beneficial for both parties involved, and the realization of each party’s benefit depends on the other party’s material contribution to the exchange. At the same time, trading parties generally face a range of possible mutually advantageous prices. The limits of this range are defined by the respective price at which an exchange would cease to be beneficial to each party, such that the choice of the price at which the transaction ultimately takes place determines the size of the benefit that each party derives from the transaction. Given the cooperative character of market transactions, parties ought to be disposed to transact at a price that ensures a fair amount of benefit to each of them.
This second perspective imposes clear constraints on the morally permissible terms of international market transactions even if we assume that parties have no responsibility for each other’s absolute welfare. In one way, the demand of a fair distribution of transactional benefits is more limited than the initial perspective described above. Conceptually, the demand is constrained by the range of mutually advantageous prices in a given situation, and it may well be that no price on this range is sufficient to fully provide for a party’s basic needs. There is another way, however, in which fairness in the distribution of transactional benefits is significantly more demanding. According to the first perspective, there would appear to be no moral constraint on the profit that a party may make as a result of a transaction above and beyond what is required to guarantee that each party enjoys the relevant absolute level of welfare. To stay with the example, provided that her foreign suppliers are sufficiently well-off, a European coffee importer would be morally free to make whatever profit she is able to obtain in the market. Any such profit, however, is a reflection of the price at which the initial transaction took place and thus subject to a fair distribution of transactional benefits. Following the perspective I have described, then, rather than focusing on absolute levels of welfare, we should think about ethical trading in terms of profit sharing.

Distribution / Gender / Old Blog

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How poverty antagonises the interests of children and those of women

This is a post about the difficulty of addressing a particular issue of justice that exists against a background of unjust economic and politic arrangements. It illustrates how attempts to rectify one kind of injustice risk to aggravate others.

All around the world there are lots of kids who spend many of their childhood years, and sometimes their entire childhood, without much face to face contact with the people who used to be their primary caregivers, and whom they still see as their parents. This happens as a result of temporary migration for work, of the kind that, for legal, economic and other pragmatic reasons, doesn’t allow migrant parents to take their children with them. Temporary migration has always existed, but it has been on the raise recently, thanks to the opening of labour markets and to the increased accessibility of long-distance travel. Moreover, temporary migration has become increasingly feminised due to the world-wide abundance of jobs in traditionally feminised sectors such as care for children, the ill, the elderly and menial work.

And this is the point where some of the trouble starts: parenting, too, is a traditionally feminised activity, especially the bits that have most to do with hands-on care, daily involvement and emotional support. It’s true that a new model of involved fatherhood is becoming popular in some of the richer countries in the world; but most temporary migrants come, for obvious reasons, from the poorer countries that also tend to be more gender conservative. Because mothers are usually the more involved parent, their migration (without the children) is bound to be harmful at least in one way: it deprives children of continuity in care. And children are generally believed to need continuity in care: severing a firmly established bond between children and parents represents significant harm to the child. No doubt, many of the migrants’ children also benefit from their parents’ migration, because parents usually send remittances that pay for better housing, education and creature comforts. It is hard to aggregate the benefits and harms that parental migration entails for children. Some studies suggest that these children are worse off with respect to educational achievements and social relationships with their peers, others deny it. Most studies I’ve seen tend to agree that, compared to their peers, migrants’ children suffer from more feelings of sadness, insecurity and isolation and from lack of adult guidance. So, even if migrants’ children are better off materially, this doesn’t take away from the fact that growing up with very little, and only sporadic, face to face contact with one’s parents is an important kind of deprivation. These children suffer an injustice.

But who is responsible for the injustice – who has the duty to prevent or mitigate it? It is their individual parents, to whom they are already attached, that children need, and so it seems that it is these individuals who should make things right. This is a difficult claim to make, for two reasons. First, on closer inspection, it often turns out that the mothers’, rather than the parents’, absence is most harmful. But isn’t it obviously unjust to blame women for ‘abandoning their children’, as the media often puts it? Why aren’t fathers equally involved in parenting in the first place, such that they become able to provide practically and emotionally for their children when mothers-only migrate? And, second, leaving this unjustified gender asymmetry to the side, in many cases it seems unjust to ask migrants to take the full responsibility for their children’s predicament. Temporary migrants usually cannot find proper – or any – work in their country or region of origin, and migrate in order to provide for basic necessities for themselves and their families. They do not abandon their children merely in order to keep up with the Joneses and, morally speaking, they don’t abandon their children at all; part of their reason to migrate is children’s wellbeing. Migrant parents merely find themselves in the impossibility to provide for all the important interests of their children: in continuity of care as well as in proper housing and reasonable economic security, for instance. It is not their fault that they cannot ensure all these things. And it would be too easy to say ‘they should not have had children under these conditions.’ Maybe it was not entirely their choice to become parents. Maybe they did not, and could not, foresee their current poverty or economic insecurity. And, in any case, it is unjust for people to find themselves in a situation in which they ought not to parent due to (collectively avoidable) economic circumstances.

What do you think?