Friday, December 28, 2012

Grillo ergo sum

So in reply to Monti's Agenda, Beppe Grillo has decided he also ought to come up with a programme. Grillo's '16 points' is a pretty depressing read, confirming the total lack of any innovative thinking on the Italian political scene at the moment. Grillo's party basically represents the traditional 'antipolitica' - populist, pseudo-Poujadiste hatred of the political class - which has long been a powerful force in Italy, coexisting oddly with what has actually been a very stable party system for a most of the post-war period.

Italians have comparatively very low levels of trust in their political leaders, yet take a very long time to replace them. The last big political earthquake was in 1992-94, when the post-war political elite revolving around Giulio Andreotti and the slightly younger cohort of Bettino Craxi and Arnaldo Forlani was swept away by the Tangentopoli revelations of entrenched and often spectacular corruption. After the 1994 elections, a new elite based around Berlusconi's dominance of the right (alongside the former Fascist Gianfranco Fini and the Northern separatist Umberto Bossi), former Christian Democrats Romano Prodi and Pierferdinando Casini in the centre and the d'Alema generation of ex-communists on the left, took control and remained at the commands until now. A TV news programme in the UK in 1994 would have featured figures such as John Major, Michael Heseltine, Tony Blair and Gordon Brown. Italian telegiornali still revolve around Berlusconi, Fini, and Casini on the centre-right, and Bersani was already a minister in the first Prodi government elected in 1996.

The forthcoming elections look likely to change all this, with Bossi now off the scene (largely due to illness)) and Berlusconi fighting a last battle to remain relevant. But the novelties on the political scene - Grillo and Monti - seem themselves to be fighting the battles of the past. Monti, himself just short of 70, represents the generation of Eurocrats responsible for designing European Monetary Union, determined to apply the orthodox medicine of austerity to reassure the markets and senior European partners that Italy will keep its side of the eurodeal. Grillo, a comparatively youthful 64, proclaims a sweeping condemnation of the entire Italian political class, and offers a programme in which 10 of the 16 points are focused on reducing the financial costs of professional politicians and eliminating political parties from the decision-making process. On the economy, Grillo suggests a referendum on the euro, a guaranteed minimum income (in which currency?), a stop to big infrastructure projects and a vaguely defined programme to help small and medium-sized businesses. As an economic programme, this could have come straight out of the vague autogestionaire thinking of 1970s eurocommunism.

Faced with this choice, emigration looks the best bet for Italians who have not yet claimed their pensions. Torn between a dour and self-interested technocracy and an opportunistic and ignorant populism, the only viable choice is Bersani's stale recipe of timid liberalization and maintenance of a notoriously unjust and unbalanced welfare state. More than ever, Italy is suffering from its failure to develop a mainstream, social democratic, egalitarian and pro-market party on the left. The PD is trying to become this, but remains trapped by its conservative Catholic wing on the right and its traditional communist wing on the left, neither of whom seem to understand how markets need to be regulated in the modern age.

Thursday, December 27, 2012

Privatize and be damned

The Italian elections are looming, and amidst the chaos of elite manoeuvrings there is the glimmering of a policy debate (a bit of a rarity in Italian election campaigns). Mario Monti, despite announcing he would not personally stand in the elections (being a life senator, he will be in parliament anyway) has nailed his colours to the mast publishing an 'agenda' (basically a manifesto) and inviting party lists to commit to electing him Prime Minister once the new parliament is formed.

Interestingly, Monti's programme has already been condemned as 'statist' by Alberto Alesina and Francesco Giavazzi, the economist duo that have spent the last few years vainly demanding liberalization and reform of the Italian economy. Alesina and Giavazzi's argument is that the Italian state acts as a break on economic activity, and a large-scale programme of privatization is needed to liberate Italians from one of the heaviest tax-burdens in the OECD. Rather than taxing the income of productive sectors and then giving them free services, for A % G richer citizens should be offered lower tax rates and invited to take out private insurance policies for healthcare and pay market-based fees for school and university. Mmm, it would be fascinating if that had ever been tried somewhere - then we could maybe get to see what would happen! Of course we have the natural experiment of the US, whose healthcare system is the most expensive and almost certainly the least efficient of any advanced nation. And sure, it has great universities, but I can't remember any studies showing US private high schools as being better than the largely state-funded systems in Europe.

But actually it's even worse than that. Privatization can be at best a modest improvement (for instance, airlines in the 1980s and telecoms, for the most part), a lot of the time, pretty disappointing (utilities without adequate regulation), and sometimes, totally catastrophic (UK railways, Russian... well, just about everything). The point being that even if you believe the market is likely to perform better than the state, privatization isn't enough on its own - it needs to be done properly. And the institutions that determine whether or not a privatization is done properly are precisely the same ones that determine whether or not a state company will fail. So privatization and liberalization in themselves don't solve anything, unless you manage to solve the original problem which is the failure of the political system to nationalize or privatize, regulate or liberalize, efficiently.

So to take an example, cited in the comments to A & G's article, car insurance in Italy before 1994 was a cartel regulated by the state, which fixed prices and allowed insurance companies to enjoy profits without competitive pressure. Then, liberalisation came along with the removal of price controls, and hoopla! Italian car insurance prices increased by 464% in less than two decades. The reason presumably being that the state failed to regulate competition properly in the market, and therefore the removal of price ceilings left the insurance companies free to fix prices at a higher level.

What makes Alesina and Giavazzi sure that privatization in Italy would not be just as bad as statism? No idea. But the fact is that wholesale privatisation - especially of delicate sectors like healthcare and education - would be an accident waiting to happen unless Italy manages to reform its politics. And pushing hard for American-style solutions, precisely when the US is in almost as bad a mess as Italy, doesn't seem politically smart to me.

Monday, December 24, 2012

The Voice of Albert Hirschman

So one of my most admired social scientists has died, at the ripe old age of 97: see obits here, here and here. I have nothing much to add to the various tributes that have appeared, but I thought I'd give my own personal take on Hirschman's work, because it was probably amongst the most inspiring scholarship I've ever read and provided the backbone for my doctoral thesis on the creation and collapse of the Union of the Democratic Centre (UCD).
The UCD was the party that guided the Spanish transition to democracy and then fell apart, providing an almost unique example of a political party doing the hard bit of establishing an organisation on the ground, winning elections and government power, and then self-destructing in the most puzzling way. After months searching in vain for a theoretical framework that could make sense of this event (the party politics literature provided none, given parties' tendency to survive and stick around, rather than collapse) a friend suggested reading Hirschman's Exit, Voice and Loyalty. The usefulness of the framework was immediately obvious, since what I was trying to explain was why some members of the party had decided to exit, rather than stay inside the party (loyalty) exercising voice to turn things around. What I came up with was a loose framework that identified variables influencing the likelihood of exit (alternative electoral strategies, the openness of the electoral system to founding new parties, alternative sources of campaign and party funding). What I couldn't so easily explain was why some members stuck with the party, rather than exercising the exit option, even when the party's electoral decline meant that exit had become the dominant strategy. In other words, I couldn't explain loyalty, and neither, as Brian Barry argued, could Hirschman, or at least, not within a maximizing framework.
Hirschman's work constantly pushed at the tensions between economics and the other social sciences, and that is why his writing was so insightful. During Hirschman's career, mainstream economics moved steadily away from the kind of qualitative and conceptual analysis he deployed, and entrenched itself in a highly mathematical approach in which departures from maximizing behaviour were considered aberrant, the error term. Yet Hirschman insisted on studying precisely such behaviour, and the ways in which it interacted with classically rational action. As well as EVL, Hirschman's next book, Shifting Involvements, sought to understand the waves of collective action that drove political change, such as the student mobilizations of the late 1960s and 1970s. Shifting Involvements implied that individuals could be carried along by tides of collective activism, which were followed by periods of demobilization and relative apathy. In a similar vein, The Passions and the Interests looked at the ways in which rationalist thought had suppressed more romantic, emotive social behaviour as capitalism took root in the 17th and 18th centuries.
In other words, what Hirschman was interested in doing was understanding the variability of human behaviour. What economics and political science have spent the last few decades doing is assuming away this variability, and cramming the full range of social action into a narrow framework which is conducive to mathematical reasoning, but pretty useless for understanding and, especially, predicting social behaviour. In a sense Hirschman's passing reminds us of what the social sciences have lost over the last couple of decades in which the maestro, despite maintaining his emeritus position at Princeton, enjoyed his semi-retirement. It may be asking too much to hope for another Hirschman to come along, but we should at least try and encourage young scholars to take on the big questions with the same ambition and openness. Sadly we seem to be doing the opposite.