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Economics

O Contrato Social Pós-Pandemia

Jun 11, 2020 Dani Rodrik and Stefanie Stantcheva

CAMBRIDGE – O COVID-19 acentuou grandes falhas na economia global, expondo profundamente as divisões e desigualdades do mundo atual. Também multiplicou e ampliou as vozes daqueles que pediam reformas de longo alcance. Quando até a comunidade de Davos fazem apelos por uma "redefinição global do capitalismo", sabe-se que as mudanças estão em marcha.

Existem alguns tópicos comuns nas agendas políticas recentemente propostas: para preparar a força de trabalho para novas tecnologias, os governos precisam aprimorar os programas de educação e treinamento e melhor integrá-los aos requisitos do mercado de trabalho. A proteção e o seguro social precisam ser melhorados, especialmente para os trabalhadores da economia informal e em contratos de trabalho não convencionais.

De maneira mais ampla, o declínio do poder de negociação dos trabalhadores nas últimas décadas aponta para a necessidade de novas formas de diálogo e cooperação entre empregadores e empregados. Uma tributação progressiva, melhor desenhada, deve ser implementada para atender crescente desigualdade de renda. Políticas antimonopólio precisam ser revigoradas para garantir maior concorrência, principalmente no que diz respeito a plataformas de mídia social e novas tecnologias. As mudanças climáticas precisam ser enfrentadas de frente. E os governos devem desempenhar um papel maior na promoção de novas tecnologias digitais e verdes.

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Dani Rodrik

Writing for PS since 1998
206 Commentaries

Dani Rodrik, Professor of International Political Economy at Harvard Kennedy School, is President of the International Economic Association and the author of Straight Talk on Trade: Ideas for a Sane World Economy (Princeton University Press, 2017).

Stefanie Stantcheva

Writing for PS since 2018
6 Commentaries

Stefanie Stantcheva is Professor of Economics at Harvard University.

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0 Comments on this paragraph, 19 Comments on this article

Edison Huang Jan 27, 2022

Interesting to think about this along of the lines of SOEs' potential in creating good jobs
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Edward Mills Dec 27, 2020

This article is typical academic-speak. It stresses the obvious and offers suggestions that deal with the most obvious without adequate consideration of the "unintended consequences!" Most importantly, it fails to identify and address the most important root causes of the "inequalities" created by globalization.

First, of course, was the fact that U.S. corporate income taxes were, until President Trump's tax reform, among the highest, if not the highest, in the world and foreign income was not taxed until it was brought home (repatriated). The effect was to encourage firms to locate abroad and to keep their earnings outside the U.S. However, with a few notable exceptions, the academic community was dead silent when a cry was needed for reform and Trump received virtually no credit for the tax reform or the steady reductions in the regulatory burdens.

More importantly, most of our global competitors rely on consumption taxes to finance their social welfare programs whereas the U.S. relies on income taxation. Consumption taxes do not apply to exports but companies must recover the cost of their employee benefit programs in prices levied not only on U.S. consumers but on foreign consumers of U.S. produced goods and services.

Accordingly, any "restructuring" of the U.S. economy to address the issues related to increasing inequality must include measures to make the U.S. economy more competitive.

MOreover, the higher the rate of income taxation the greater becomes the incentive to seek measures to avoid or at least minimize the impact of taxes. In the 1970 very high marginal rates sif income taxes created a massive incentive to shift corporate income into projects to increase capital gains such a stock buy-backs and the acquisition of companies to increase reported income without investing in new productive capacity. As a securities analyst back then I was shocked at the extent of the economic distortion which led to widespread concerns over the prospect of "STAGFLATION," stagnant economic growth with rising inflation. And of course, high marginal tax rates were an incentive to locate abroad. Let us assume that foreign income was made immediately subject to taxation, the result inevitably would be a shift in economic power away from the U.S. to foreign economies. It would especially create an economic boom for Europe if not also for China.
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Mike Smithfield Jun 20, 2020

Pray tell, how can one better design a progressive taxation system. Usually such a comment is a euphemism for increasing taxes. We already have higher income tax rates than most countries in Europe. Social charges are higher in Europe, but they are levied starting at the first euro of income.
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Angel Gavieiro Jun 18, 2020

Thought-provoking article to which I would like to respond building as well over the sound reflection done by Joe Ryan in the comments.

Agreeing with the arguments of the critical role of governments to ensure that (1) externality costs are paid by who incurs them (e.g. carbon tax) and (2) fit-for-purpose education must align to the jobs of the future, if the final goal is to provide good quality jobs the real issue is not production as perfectly argued by several of the commentaries below.

We need to understand the ultimate root cause of bad jobs generated looking back the last 30-40 yrs. trend: management decisions following the treadmill to produce a target Return on Equity (RoE) so to sustain stock price growth; how much RoE? well, depends by industry and companies, but for all at minimum, an RoE > CoE (Cost of Equity) according to past mainstream in Financial Economics (ie shareholder value maximization), so that the only 'good growth' for a company is when happens at RoE > CoE, otherwise it is 'bad growth' because destroys value to shareholders.
But, who decides CoE? again, mainstream Financial Economics claims that CoE comes from 'shareholder expectations' which are embedded in past stock prices and can be estimated with the CAPM model for each company: CoE = risk free rate + Beta x market premium... in practical terms, {10 yr. govie yield + {specific stock volatility vs market} x {market premium}, the latter is derived from econometric regression of past stock market data series. So, for instance, for banks is considered a CoE in the 10-11% range.

In other terms, we have accepted this 'convention' to frame what should be 'shareholders expectations'... has anyone questioned the validity of this convention? This is not an small matter, since all management in large companies, and their incentive compensation packages, follows this logic.
But the story does not end there, we need to follow the governance chain: Board Directors take management on account to achieve this target RoE above min. CoE threshold, ... following the directives from whom? mainly Asset Management companies (nowadays own the vast majority of shares) that nominate them, who in turn owe their mandate to Institutional Investors (pension funds, insurance cies., mutual funds...), who in turn owe their mandate to the individual people that hold the given fund or policy, these are the Ultimate Shareholders, human beings (actually, an important part of the employees we are trying to help with good jobs in the first place!... plus, of course, the 1%, the HNWIs of these world, as well human beings but that overall care much less about those good jobs and that, worryingly, they are progressively increasing their part of this pie of Ultimate Shareholding).

Now, if you ask them, would these Ultimate Shareholders demand out of companies' management the min. CoE from CAPM model if they were conscious of the management decisions' impact would have in their employment and other externality costs? I think we all know the answer... I tend to believe societies could live with much lower CoEs, depending on overall conditions of the real economy, and find a balance.

Evolving this 'governance chain' (to hear the mandate of the Ultimate Shareholders) along with substituting the 'CAPM dogma' (for a forward looking CoE based on the reality of the real economy) is what needs to be fixed (yes with a good deal of ingenuity and deep thinking) at the very core of the current system if we want to move from 'Shareholder Capitalism' to 'Stakeholder Capitalism'.

Sorry for the length.
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Joe Ryan Jun 18, 2020

Nice essay, thanks!

It emphasizes too much, however, the idea that people need more or better training to be qualified for employment in good jobs.

First, all jobs should be good jobs. The most important step in achieving this would be to socialize access to basic necessities. Some necessities need to be provided by governmental firms, along the lines of "Medicare for All." Other necessities that can be most appropriately provided through markets can be made accessible through a "Universal Basic Income" or the like.

With access to basic necessities socialized, even capitalist firms that compete on the basis of minimizing employee compensation will only be able to race to an "acceptable" bottom. The terror of being made destitute by a corporate raider's decision will be gone.

Second, the emphasis on training to prepare people for jobs should shift to ensuring that employers develop the people they hire into the roles they need to fill. General-purpose public education isn't the place to do this. On the other hand, non-capitalist employers in the U.S. already hire people into good jobs and, constrained by a commitment to job security, concentrate on making their people succeed as employees.

Capitalist employers, with no commitment to job security, have tended to achieve the employee-role fit differently, by deskilling, which both ensures that generic hires can do the job and standardizes outputs. Despite the social benefits of product standardization, deskilling has a bad name because capitalist employers have used it to beat down compensation, job security, and working conditions. But that's a result of the employers being capitalist, not of standardization itself. There's no non-capitalist reason to abuse employees just because their tasks are standardized and can be performed without lengthy training.

That's in regard to your essay's points on training. The essay also makes the excellent point that firms should internalize community costs. Schleifer snd Summers made this point in "Breach of Trust in Hostile Takeovers" (1987), arguing that turnover in firms is exaggerated, from the point of view of social welfare, by firms' legal ability to renege on implicit contracts with unprotected stakeholders. Presumably, this subject has been explored quite a bit since then.

The essay makes another excellent point, that firms will have to be regulated to internalize social welfare goals. This essentially means that the state should be socialist to reform capitalist firms, but I suppose you must feel that using these taboo terms would not help your argument.

Finally, the essay's argument that "the growth and social agendas are one and the same" is a good one but should be qualified. Growth has been looked at partly as a full-employment measure, because investment expenditure is needed to get aggregate demand to the full-employment level. (Things that reproduce the existing economy — existing consumption plus repair and replacement of existing durables — can be produced while employing only part of the labor force.)

From the employment-distributional point of view, the growth that investment creates is a by-product. It's not necessary for providing adequate consumption for the whole population, which can be done sustainably using only part of the labor force, nor even for achieving full employment, which as Keynes noted could be done by digging holes and filling them up. Furthermore, growth is not necessarily beneficial — which is a big topic, so leave it at that.

But from the capitalists' point of view, growth is the thing that expands their wealth and thus incentivizes their investment spending. This part of the growth agenda is not "one and the same" as the social agenda.

Achieving the social agenda through socializing access to necessities would reduce both the capitalist and the non-capitalist incentives for growth. There's no reason why it should deter innovation, however, so economic improvement could continue with or without growth.

Forgive my length.
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D. V. Gendre Jun 15, 2020

The world economy has no problem with the production. The production is highly specialized and very efficient (for what is technologically possible today). So there is no need for reorganizing the production since this works mostly very good. Of course, there is always potential to optimize...
But we certainly face a problem of distribution. We need to reorganize the distribution of consumer goods! Having said that the root problem is really still overpopulation. And that won't go away neither with reorganizing production nor reorganizing distribution. We can increase production in no time and we could feed 15 billion people on this planet. But what's next? 20 bil., 30 bil, 50 billion people? The biggest thread is overpopulation and therefore mainly a problem of the distribution for the time being. The production will find ways around as long as resources are available. But the resources are the bottle neck.
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José Luis Viveros Añorve Jun 14, 2020

This may be the case of large enterprises, however, micro and small firms are the predominant economic units. In developing and emerging countries, micro and small firms tend to be unproductive and unregistered (necessity) firms that barely make any profits and create the bulk of employment, which in turn tends to translate into informal/precarious jobs.
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Robert Johnston Jun 14, 2020

All well and good, but it must be said that one of the largest sources of "good jobs" today--secure, with good pay and benefits--for the average working class man (and some blacks and women) are the police forces (800,00 strong). Reducing police will close off one of the few remaining sources of decent employment for the working class, already suffering hghly elevated "deaths of despair." Yes the police are serioiusly overstaffed and prone to violence, to say the least, but if police "defunding" and reform are not handled with great care and sensitivity, with alternative employment creation, we will be creating a new source of ever more serious violence from the disenfranchised, as well as further rises in suicide and drug use.
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José Luis Viveros Añorve Jun 14, 2020

Aren’t these core problems the result of the government’s failure to redistribute income and wealth, provide quality education and universal social protection?

Arguing that these core economic problems are a byproduct of firms’ decisions is, in my view, misleading, because firms don’t operate in a vacuum. They are part of an economic system and are affected by the institutional framework and macroeconomic environment in which they operate.
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Surendra Thapa Jun 12, 2020

What about the role of the third sector i.e. community sector or the very people for which the private firms and public authorities are partnering to create jobs.
Their voice and participation also matter.
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Surendra Thapa Jun 12, 2020

Employment is not just an economic issue, its an personal issue to as it affects the person's dignity, self-confidence and social networks. Therefore, guaranteeing universal minimal employment is crucial to prevent social unrest and other socio-political hazards.
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Michael Public Jun 11, 2020

Real ivory tower stuff and not one practical suggestion. You do realise that AI is going to gut good jobs - truck driver, teller, soldier and many others are squarely in the crosshairs.
- Remi Chukwudi Okeke Jun 11, 2020
  
  Truly, some ivory tower stuff!! Where's the contract trajectory?
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Michael Public Jun 11, 2020

Imagine 42 different Facebooks. Because social media only works if there is no competition - good luck with this one.
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Jean-Pierre Dumas Jun 11, 2020

Who will decide who will produce, how to produce, where to produce? Socialist professor of economy?
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Prashant Kotak Jun 11, 2020

But every country in the world is right now entangled with every other country in the 'old economic order'. They all move at they different speeds, because for many their people are not puppets, and those counties cannot budge without the buy-in of their populations. As the EU is finding to it's cost, that across-the-board buy-in, is not so easy to obtain. Something as mild a reordering as Brexit has caused half a decade of anguish and pain. You haven't got a world government, so how can a 'new economic order' possibly work, unless you disengage from all business and trade with countries that don't subscribe to the 'new economic order'? Essentially marking those nations as apostate. So questions abound of course. Example: suppose some hypothetical 'old economic order' authoritarian country, name starts with a 'C' and ends with 'a', resemblance to any actual country purely coincidental, says it is buying into the 'new order' because it needs to sell to you. How would you police them to ensure they comply? Same as you did over the last three decades while they took your existing industries and companies for a ride? And if your compliance checks find they are breaking rules, would you have the gumption to disengage? Or did you think you have the muscle to impose penalties?

This is a plea for some realpolitik. Easy to say do x and do y. The devil is *always* in the details, the mechanics, of making new systems imposed from the top outside on inwards, work. I can think of no superimposition of such systems that has *ever* worked without mass scale pain and suffering, at least initially, sometimes for decades, in populations upon whom this type of change has been visited. Even democratic consensual nations who have attempted constructs like this, like the EU and it's adjunct the Euro, have turned into slow, inflexible, bureaucratic nightmares. You think populations across the globe will buy into a 'new economic order'?
- Michael Public Jun 12, 2020
  
  "name starts with a 'C' and ends with 'a'
  Canada?
  Cambodia?
  - Prashant Kotak Jun 13, 2020
    
    Fair cop, you got me. I was of course alluding to that bastion of authoritarianism, Canada, under the iron rule of its taciturn Chairman, Trudeau.
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Prashant Kotak Jun 11, 2020

And would that also entail laws to prevent companies and people from producing things that don't fit the policies you have in mind? Because they don't create 'good jobs'? I'm not talking about companies producing cyanide as a byproduct which they dump in the nearest river. I'm talking about companies that make goods by the bucketload, that are essentially unnecessary, but people nevertheless want, you know, the 'cheap-plastic-and-metal-tat-from-china' stuff. Alongside the 'oh-my-god-i-cant-believe-how-cheap-this-superb-nobrand-laptop-from-china-is' stuff.

In any case, if you do go down this route, I recommend you should take some advice from the Vatican, who have long-term experience of such matters. You will need a catchy name for your policy booklet, but I guess you couldn't call it the 'Bible' or the 'Kuran' or 'The Little Red Book' (or even the 'Little Green Book' as that was trademarked by the Gaddafi family, although a different kind of green) - all names already taken. How about 'The Book of Davos'?
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