Markiewicz (2019) investigates the Polish state’s role in nurturing the country’s automotive industry. By using protectionist, FDI-friendly, and investment conditionality methods, the author sees the domestic bureaucracy as instrumental to the sector’s growth. The lack of state capture by powerful multinational corporations (MNCs) is also viewed as a key enabler of the policies’ effectiveness. Poland has developed into a key European automotive hub Poland’s relationship to the automotive industry has a turbulent history: once central and eastern Europe’s largest car producer under communism, the sector crumbled in 1989. This led the Solidarity movement government to begin the sector’s privatisation to multinational corporations (MNCs). Today, Poland is one of the European Union’s major light vehicle makers, accounting for 4% of the block’s annual production in 2019. The country is active in both vehicle and component production. Once largely an assembly line for MNCs, Poland became a net exporter of automotive components from 2000 onwards (see Figure 1, below). This covers from easy technologies such as seat belts to advanced ones such as engines. In fact, nine out of the ten largest automotive component producers had factories in Poland as early as 2006. A natural question arises: how did the sector reach this position after its collapse in 1989? Figure 1: Net exports of Polish vehicles and automotive components, euros bn DATA: Markiewicz (2019), UN Comtrade Public policy was a key driver of the automotive sector’s expansion Despite multiple changes in government over time, the Polish state has remained consistently in support of its automotive sector. This was done through a combination of protectionist and FDI-friendly measures. More specifically, in 1993 Poland agreed to sell the state-owned automotive maker FSM to Fiat, in exchange for investments in the sector. Moreover, the government agreed to shield the local market from imports, as well as offered duty-free component imports and other incentives. The FSM privatisation was the beginning of a series of bilateral deals between the Polish state and automotive MNCs, where special privileges were exchanged for investments. Most crucially, after 1996 Poland also started to set local content requirements in order to incentivise automotive producers to buy from Polish component makers. This, combined with the usage of Special Economic Zones (SEZs) led to the parallel expansion of the component sector. Additionally, the Ministry of Trade became responsible for monitoring that MNCs met their obligations, withholding tax reliefs in cases of noncompliance. After Poland’s accession to the EU in 2004 the tools it used changed but the approach to the automotive sector remained highly supportive. More specifically, while it had to remove import tariffs and quotas for foreign cars, it got access to Structural funds to support the sector. In fact, by using EU Research and Development grants Poland further developed its automotive capabilities on the research side. State capture did not occur due to domestic conditions and EU controls Markiewicz (2019) emphasizes that despite the Polish state’s high reliance on MNCs for investment, it managed to balance between the companies’ demands and the country’s development. This was driven by two factors: 1) domestic political economy conditions and 2) European Union (EU) rules. On the first point, intense political competition was argued to lead to a developmental agenda. In terms of the latter, the author highlights numerous cases when EU regulation limited MNC negotiating power by limiting what the Polish state could offer. For example, in order to join the EU, Poland had to redesign its SEZs, which limited the number of exemptions that could be given to MNCs. Essentially the EU’s aim to protect the rest of its automotive industry prevented the Polish government from giving too much to MNCs. Conclusion The paper gives a positive message over how a country can utilise MNCs to develop its domestic industry. With the automotive sector accounting for 11% of the country’s manufacturing base, 4% of its GDP, and 7% of its total employment in 2016, past support schemes seem a resounding success. At the same time, one needs to remain cautious over FDI-reliant growth, with volatility and superficial growth being key risks.

Invisible Women is a damning critique of a world that – because it is designed by men, for men – is biased against women to varying degrees, from the trivial (phones too big for women’s fingers) to the deadly (higher likelihood of death in car crashes). Criado Perez writes in a lucid, bantering style, and while her tone is more investigative reporter than staid academic, her book is chocked full of footnotes. It is not only highly readable but should also be required reading for policymakers, for its most tragic conclusion is that, even with the best of intentions, policy is only as good as its dataset, and therefore the startling lack of female-inclusive data dooms women to poor design in just about every facet of life. Thoroughly grounded in feminist theory (she cites de Beauvoir’s Second Sex in the preface as an intellectual lodestar), Criado Perez’s gameplan is repetitive but highly effective: look closely at any sector, from pharmaceuticals to Nordic snowplow policy, to orchestra auditions and everything in between. Her data is both interesting and infuriating. These problems can, broadly speaking, be put into two heuristics: some are acted misogyny (e.g., blind auditions in orchestras, where the performer is behind a curtain and their gender is therefore unknown, have significantly more women successful candidates), whereas others revolve around sins of data omission (90% of pharmacological articles described male-only studies). Due to this sin of omission, nearly every sector imaginable has terrible user design for women. One example of 'the path to hell being paved with good intentions’ is, surprisingly enough, in the NGO sector. When NGOs realized that their clean stoves (used to replace traditional stoves, which are deleterious to health due to the smoke they give off) were not being used, these NGOs’ first instinct was to blame the societies and their ‘traditional cultures’. The real problem, however, was that the ‘developers have consistently prioritised technical parameters such as fuel efficiency over the needs of the stove user, frequently leading users to reject them’. The reasons are varied and worth repeating here: in Bangladesh, the new stoves didn’t allow multitasking (as traditional stoves do), thereby effectively increasing the working hours of women in India, the lab-approved stove broke down frequently in actual use and required extensive maintenance – but this failed to realise since men were the primary repairers. They usually refused to fix the new stove since the old one ‘worked just fine’ also in India, high-efficiency stoves (rigorously tested!) only accepted smaller pieces of wood, and as wood-splitting is difficult for many women, they reverted to traditional chulhas, which have no such size limitations. Now, occasionally Criado Perez runs the risk of being monocausal in her argument because when you have a hammer, everything looks like a nail. Bad user design is not solely targeted at women, although her logic does add up for the most part. But arguably she’s also stretching, if only a bit. However, this is perhaps uncharitable, as 99% of the book reads like a litany of examples of the data gap and how sexist policy adversely affects women. There is no denying sexism exists in this world, and as we move farther from the overt, Mad Men-esque sexism (not to say that this doesn’t still exist in many corners), the next step will be expurgating the often-unseen (perhaps even unintentional) built-in sexism. And Criado Perez’s book does an excellent job of shedding light on the insidiousness of certain sexist policies. Sometimes it’s the unintentional – or even well-intentioned – which ends up causing the most harm. Overall, Invisible Women does a rare feat: incredibly enlightening (at least for this male author, although maybe not so much to women) and highly readable. If half the population is being subjected to bad policy, it goes without saying this is a big issue. It’s neither exclusively a Western nor ‘developing world’ problem; it’s not about rich or poor (exclusively). It’s an insidiously pervasive issue, but the first step is understanding the problem exists, then we can take steps to remedy it.

Schlingemann et al (2020) compared the share of employment and GDP attributed to stock market companies in the US in the 1970s and in 2019. Both measures of economic relevance have decreased over time, partially because of the switch from manufacturing to services. Companies in the service sector are less likely to be listed and, consequently, their increased economic significance has decreased the stock market’s representativeness. Introduction Last summer, the US had its lowest employment rate since 1948 while the NASDAQ and S&P 500 reached their highest values to date. The dramatic contrast emphasizes the disconnect between the stock market’s performance and general economic activity. The paper frames the dissonance within the historical context of a switch from manufacturing to services. As the economy transforms, the stock market’s degree of general market representativeness decreases as well. In the discussed paper, representativeness is defined as the fraction of GDP and employment provided by public companies. Methodology The paper estimates the listed companies’ contribution to US GDP and employment from the 1970s to 2019. It uses approximations because listed companies usually only disclose their employee numbers and employment contribution at the global level, and do not provide country splits. Consequently, the paper uses the companies’ global employment numbers and approximates their value-added according to previous relevant research. This methodology leads to an overestimation of the public companies’ contribution to the US economy, as not all their workers are located in the US. In fact, their contribution is more inflated in 2019 compared to the 1970s because companies have become more international over time. As a result, the paper’s estimate of the change in stock market representativeness in 2019 compared to the 1970s should be treated as an upper limit of the real value. Results Schlingemann et al (2020) found that listed companies contributed a lower share of GDP and employment in 2019 compared to the 1970s. More specifically, the fraction of non-farm private share workers that were employed in public companies were estimated to have dropped from 41% in 1973 to 29% in 2019. The lower contribution is partially attributed to the US economy’s switch from manufacturing to services, where service companies are much less prone to be listed than manufacturing ones (see Figure 1). The difference reflects a dissimilarity in the incentives they face. For example, service companies are generally much less capital intensive than the industrial ones and are therefore less interested in the capital benefits the stock market can provide them. Figure 1: 80% of manufacturing companies were publicly listed in the US in 2019 DATA: US Bureau of Labour Statistics (BLS), Bonsai Economics. Does the stock market have to represent the economy? Despite the apparent disentanglement between stock market performance and general economic activity in the US, it is important to highlight that from the beginning there was no compelling theoretical argument about why the stock market must represent total economic activity. Some other examples of why it does not need to be the case are the following: Listed companies are likely to be larger and operate within different market segments than unlisted companies. Consequently, their performance may not be well correlated. Market capitalization partially reflects expected future earnings which are not reflected in the company’s current employment and GDP contribution. Market capitalization may increase without an increase in employment and GDP contribution if the company produces the same good with a lower labour cost. For the above, and other reasons, the extent to which the stock market represents total economic activity is an empirical question, which the Schlingemann et al (2020) paper investigated.

The Zaimakis (2010) paper argues that the Greek Left’s criticisms of rebetiko music about its fatalism and Eastern roots contributed to the development of the laiko and entexno music genres in the second half of the 20th century. However, in contemporary Greece rebetiko is popular within the Greek Left, which indicates a re-interpretation of the music. Source: Picril What is rebetiko? Rebetiko is an urban music style developed in Greece during the late 1920s and it involves the merge of two music styles/genres: The music of the maghes, who were a marginalised urban group scattered around brothels and hashish dens in Greece. The music brought by Greek refugees from Asia Minor during the Greece-Turkey population exchange in 1923. During this time, approximately 1.5 million refugees arrived in Greece. The maghes and the refugees had differences in both their musical style and instrument choices. However, their shared conditions of economic suffering and marginalisation brought the two groups closer, which resulted in musical innovation. Rebetiko was distinct in its emphasis on the themes of drug use and societal marginalization. This, combined with its strong Eastern roots, led both Greek nationalists and leftists to condemn it as ‘immoral’ and ‘antisocial’, particularly during the 1930 to 1960 period. Today, however, it is regarded as mainstream music and a distinct Greek national symbol. How was rebetiko perceived by the Greek Left during the interwar period? During the mid-1930s the Soviet Union initiated the dogma of socialist realism, according to which the purpose of art was to cultivate class-consciousness among the working class. Consequently, this period saw the intensification of communist criticism of music, which was often classified as either socialist or hegemonic. Within this context, Greek communists heavily criticised rebetiko for being hegemonic, or in other words an obstacle to the mobilisation of the working class. There were mainly two reasons for this assessment: Rebetiko was judged to be fatalistic in its attitude towards the working class’s misery. It described negative situations but never offered any solutions to them. An illustration of this can be seen in the song of Anestis Delias The Jacket (1936). In the song, the protagonist steals a jacket “because of fate” and tries to sell it to buy alcohol. On the way to the shop, he meets his boss who claims the jacket is his and reacts by hitting the protagonist and sending her/him to jail where the abuse continues. The song does not offer a strong reaction or solution to these conditions of misery, hence being fatalistic. Its roots in the Ottoman Empire were argued to reflect past servitude, being opposed to working-class emancipation. How did rebetiko develop to the laiko and entexno music genres? In the late 1940s and 1950s, there was a strong leftist movement towards the cleansing of rebetiko and its replacement with a ‘higher' form of popular music. A key proponent of this was Mikis Theodorakis, who was educated in classical music and argued that music should promote national cohesion and cultural uprising. This conscious attempt to cleanse rebetiko from its harsh lyrics and Eastern roots contributed to the development of two music types: Laiko music, which borrowed heavily from Western and Latin rhythms and put a stronger emphasis on ‘noble’ forms of love. Entexno laiko music, which involved the widespread lyricisation of ‘high-culture’ Greek poetry. Laiko and entexno subsequently dominated the Greek popular music scene, despite rebetiko retaining some popularity. In Figure 1 below, you can see some of the most influential musicians of each genre, with some associated song examples. Figure 1: The historical development of Greek folk music over the 20th century Links: Song example 1, Song example 2, Song example 3. How is rebetiko today? In contemporary Greece, rebetiko has become a mainstream popular music genre and it is particularly popular within the Greek Left. In my opinion, this relates to a de-emphasis of the importance of fatalism, with modern listeners being content with the simple description of societal suffering. Furthermore, rebetiko’s Eastern roots associate it with a Greek ‘otherness’ which rejects Westernisation and its associated individualism, a culture aligned with modern Greek Left narratives.

The Bentolila et al (2010) paper investigates the different unemployment responses in France and Spain after the Great Recession (2007-2009). While both countries had a pre-crisis unemployment rate of around 8%, by the end of 2009 Spain had reached 19% unemployment but France just 10% (see Figure 1). The paper argues that Spain’s higher reliance on temporary work contracts was the main driver of the difference. Spain’s larger employment protection legislation gap led to their dissimilar labour market structures. Figure 1: Unemployment increased much more in Spain than in France by the end of 2009 Data: OECD, Bonsai Economics. The contentious impact of temporary employment contracts Temporary working contracts have a mixed effect on employment as they lead to both job creation and destruction. They increase employer flexibility allowing for more hires, but they also lead to the substitution of permanent positions with temporary ones, and they create easily terminated jobs. In fact, during the Great Recession temporary workers experienced the most redundancies. Furthermore, according to OECD data, in Q4 2007 in France, 14% of workers were on flexible contracts which is little compared to the 31% share in Spain. The lower degree of protection in Spain made employment more sensitive to the economic shock, which led to the jump in unemployment in 2009. It comes to show that even though Spain and France had the same level of employment in 2007, the quality of the jobs was not the same in terms of worker protection. Why are temporary employment contracts much more prevalent in Spain? A key factor that shapes the share of temporary vis-à-vis permanent employment contracts is the size of the employment protection legislation (EPL) gap. The EPL gap is the difference between the protection of permanent and temporary employment: the larger the gap, the higher the company incentive to substitute permanent positions for flexible ones. Bentolila et al. (2010) estimate the EPL gap of Spain to be considerably larger than in France, which partially explains the higher prevalence of flexible work in Spain. Interestingly, the paper estimated the EPL gap according to policy implementation and not legislation alone. This distinction is key as according to the OECD (2004) EPL estimates, which focus on legislation alone, the EPL gap is the same in both countries. It is in the implementation stage that the gap is formed. For example, red tape- costs for redundancies are 50% higher in Spain, which makes it more expensive to fire permanent workers. Moreover, while both countries have similar legislation surrounding when temporary contracts are permitted, the lack of monitoring in Spain has allowed them to be used much more broadly. Once policy implementation is accounted for, the higher permanent position firing costs and the greater ease of using temporary contracts lead to a higher EPL gap in Spain. Conclusion Bentolila et al (2010) make the interesting point of a high EPL gap leading to more temporary contracts and more subsequent job destruction during an economic crisis. In fact, it is this ease in firing that explains the big jump in unemployment in the U.S. during the Covid-19 crisis. At the same time, it is important to remember that the pre-crisis Spanish economic boom relied on the construction sector. The construction sector was one of the main beneficiaries of temporary employment and it is unclear to what extent it would have grown had it experienced more restrictions.

The Paris Agreement was a milestone that highlighted the importance of achieving zero net greenhouse gas emissions by 2050 to prevent ecological disaster. In their working paper, De Haas, Martin, Muuls, and Schweiger (2021) identify two important barriers that can limit the green transition potential for the private sector: funding constraints and poor firm management. The starting point of the research The authors try to examine the importance of green management and financial barriers in green investments within European emerging economies. Inadequate green management can delay the transition to a sustainable business model for a firm, whereas financial barriers may hamper the ability of the firm to invest in greener technologies. Intuitively, these two limitations can delay the process of climate change mitigation. In the paper, green management is measured by whether a firm has a clear environmental objective or employs a manager with explicit environmental targets, such as CO2 emissions or pollution targets). A factor that affects green management is whether the firm was exposed to extreme weather events. Financial constraints are defined by whether a firm was declined access to bank lending or was discouraged to ask for it due to unfavorable financial conditions. Some examples of these were high collateral value requirements and elevated interest rates. Green investments are identified as physical capital upgrades, investments in operational and energy improvements, waste management and reduction, and pollution control. For instance, such an investment is the installation of photoelectric cells that reduce electricity bills. Thus, financial barriers and low–quality management that limit this kind of investments create a lose-lose situation, both for corporations and the environment. Main results The authors find that green management and financial constraints play a significant role in green investments that eventually influence climate change abatement. More specifically: Financial barriers at the individual firm level reduce the probability of the firm making at least one green investment for the next three years by 3.7 percent, with the effect being more significant in machinery and vehicle upgrades. An improvement in green management increases the quality of green investments by 8.5 percent, with the greater effect observed on water and waste management, air and pollution control, and energy efficiency measures. Figure 1 represents the percentage change of green investments for each category of investment in the vertical axis due to a change in financial or management barriers. Figure 1: The effects of financial and management constraints on green investments Source: De Haas et al (2021) The paper found that the quality of green management plays a more important role than financial barriers when it comes to green investment limitations. Furthermore, limited green investments may effectively hinder the firm’s ability to reduce its environmental footprint, translated into higher greenhouse gas emissions and pollution. An additional noteworthy result of the paper is that banks affected more by the 2008 financial crisis increased financial barriers to local firms by issuing fewer loans, which led to reduced green investments and effectively slower decrease of production emissions. In particular, they found that local emissions would have been 15 percent less, had the financial crisis not occurred. This latter remark is pertinent for the current economic crisis induced by the pandemic. As the authors explain, it might be the case that in the short – term decarbonization increased. However, it is possible that in the long – run emissions will increase again. This is because a crisis dampens the ability of the firms to reduce emissions, as a result of the financial barrier channel. Concluding… Financial limitations in the form of constrained funding and poor management quality seem to reduce a firm’s ability to implement green investments and eventually reduce the speed of air pollution decline by industrial production. Moreover, financial crises seem to delay the green transition process, since they impose an additional financial barrier to firms, with possibly catastrophic results for climate change.

The Reis (2013) paper ‘The Portuguese Slump and Crash and the Euro Crisis’, builds a theoretical macroeconomic model to explain Portugal’s underperformance over the 2000-2007 period, compared to the rest of the Eurozone. This is argued to have been the result of a higher degree of capital misallocation and large pension costs. Was Portugal in a slump over the 2000-2007 period? The Portuguese economy had a relatively weak economic performance after it joined the Eurozone in 1999. For example, as Reis (2013) highlighted, the country’s annual growth rate was considerably slower than the rest of the Eurozone. It was one of the only countries where unemployment grew over this time period (see Figure 1). Moreover, this happened during a period of an economic boom in other Southern European countries, supported by capital inflows from the North. Given that Portugal also experienced strong capital inflows during this period, the puzzle is why it did not see equivalent growth. Figure 1: Portugal experienced slow growth and growing unemployment over the 2000-2007 period. DATA: Eurostat, Reis (2013). Note*: main trading partner refers to the weighted average of Spain (50%), Germany (30%), and France (20%). Paper hypothesis: capital misallocation and high pension costs drove the divergence Reis (2013) develops a theoretical macroeconomic model, which formalises the hypothesis that capital misallocation and high pension costs drove Portugal’s relative weakness. The hypothesis is based on the following indications: Portuguese banks acted as intermediaries between foreign capital inflows and domestic investments. It is hard to track where exactly they allocated this added capital, but some evidence suggests that it was primarily towards non-productive nontradable sectors. For example, during the 2000-2007 period the retail wholesale sector grew the most in terms of employment, while it remained the most stagnant in terms of productivity. Moreover, Braguinsky et al (2011) estimate that Portugal shifted more towards small-sized firms, partially due to more favourable taxation for them. Such businesses typically fail to utilise economies of scale and their relative growth is another indication of capital allocation to low productivity companies. Portugal had one of the Eurozone’s most expensive pension programmes, which was the result of two factors. Firstly, the country had one of the highest rates of old-age poverty in the OECD, which led it to impose a minimum pension for everyone. Additionally, during the early 1990s, pension generosity was increased, particularly for public servants, and the added costs materialised from 2000 onwards. In order to deal with the added cost, the country increased its taxation on consumption and labour over the 2000-2007 period, in contrast to most other Eurozone countries. This led to a negative labour supply reaction and lower consumption levels. Moreover, this happened in parallel with a drop in government spending on education, culture, and economic affairs. In fact, Reis (2013) estimates that over 100 percent of the increase in total spending over the 2000-2007 period came from old-age pensions. Conclusion The Reis (2013) model for capital misallocation and high pension costs manages to reproduce the prediction of a relatively weak economic performance in Portugal. In my opinion, the fundamental takeaway is the importance of having a mechanism in place which allocates investments to productive sectors. Without this element, it is possible for a country’s productivity to stagnate despite growing investments.

The Kleven, Landais, Muñoz, and Stantcheva paper (2019) reviews the growing economic literature on the effects of income taxation on people’s migration decisions. The paper highlights the data and identification challenges researchers face, and the large differences across people’s income tax sensitivity. There are methodological challenges in linking migration responses to income tax changes… Even though migration responses to income taxation have a long history in theoretical economic literature (see Tiebout, 1956) there has been scarce direct empirical evidence of such phenomena. In fact, according to Kleven et al (2019), only a dozen papers research real-world examples, all of which are relatively recent. There are mainly two reasons for this: Data challenges because there is not much data that combines migration patterns and precise measures of location-specific earnings and tax rates. Researchers have dealt with this is by focusing on specific population groups for which such information is available such as football players (e.g., Kleven et al., 2013). Also, some Scandinavian countries do keep migration records that can be linked to administrative tax records. Identification challenges regarding whether it was the tax rate, or some other reason, that led to the migration response. This partially is because it can be hard to estimate a person’s average tax rate due to the multiplicity of factors that affect it. This difficulty explains why a lot of the research has only focused on high-income individuals. At very high incomes, the marginal tax rate has been found to be a good proxy for the average one, and marginal tax rates are easier to calculate. …and not all people react the same way to an income tax increase The situation becomes even more complex once we understand how much the likelihood of relocation, in response to an income tax change, varies across individual and tax policy characteristics. For example, workers that do not rely on their location to generate their income are more likely to relocate in response to an income tax change. This is partially indicated by the Kleven et al. (2014) paper, which researched the Danish preferential tax policy scheme for foreigners. This was enacted in 1992, and it offered preferential income taxes to foreigners with an annual income above a threshold located around the 99th percentile of the earnings distribution. The study identified a much greater inflow in Denmark of professionals from the sport and entertainment industry, both of which do not rely heavily on location-specific resources. In terms of tax policy characteristics, tax increases in small tax constituencies (e.g. US states) have been linked to a larger migration response than in larger constituencies because of the closer proximity of the alternative location. Some other factors are illustrated in Figure 1, below. Figure 1: People’s likelihood to relocate changes according to personal and tax policy factors Data: Bonsai Economics, Kleven et al (2019). Note: upwards arrows indicate a higher likelihood of relocation in response to an income tax increase. Downwards arrows signify the opposite. Conclusion Overall, it is clear that the likelihood of relocation of people to income tax changes can vary significantly according to the population and tax specifications. As a result, it is important to remain cautious of broad narratives that higher-income taxation leads to emigration, as we would first need to analyse the tax change specificities.

The Carneiro et al (2019) working paper investigates the effect of unconditional monthly transfers and information-based support on early life child development. It uses a randomised control trial in Northern Nigeria, and it shows numerous health, human capital, and resource-based improvements for treated households. Why is early life intervention important? Poor nutrition and repeated infections during the first years of a child’s life have been found to have detrimental negative effects on its long-term physical and brain development. In fact, Richter et al (2017) estimate that this could contribute to children losing up to a quarter of their income-generating potential as adults. To make things worse, this problem is widespread: Grantham-McGregor et al. (2007) approximate that two-thirds of children in Sub-Saharan Africa are either stunted or growing up in extreme poverty. In fact, Richter et al (2017) estimate that the resultant loss in GDP can be double the total amount spent on healthcare. While child development is a goal in itself, these calculations indicate that early life interventions can provide a sizeable and cost-effective boost to human capital accumulation, simply by preventing its destruction. What was the paper’s methodology? In the Carneiro et al (2019) working paper, 3,600 pregnant women in Northern Nigeria were selected and placed in a support scheme. Treatment was randomly assigned to two-thirds of the evaluated 210 villages, with the rest being used as controls. The support scheme had two parts, both of which were simultaneously provided to the treated households. These are the following: Resource-based support: women were given a US$22 per month unconditional monthly transfer until the child was two years old. This corresponds to 85% of the women’s monthly earning or 26% of her monthly food expenditures. Information-based support: locally hired volunteers would deliver helpful child-rearing information. For example, mothers were advised to only breastfeed the baby for the first six months of its life, due to the high likelihood their water was polluted. The researchers investigated the intervention’s impact on the child’s health and household consumption two years and four years after the intervention was completed. In other words when the child was four and six years old. What were the study’s key findings? Supported families experienced considerable childhood development improvements when compared to the non-supported ones. Some of these benefits are outlined in Figure 1 below, where they are attributed to the scheme’s aspect that caused them. Figure 1: Key results from the resource-based and information-based interventions Note: percentages are the probability of an effect occurring in a supported household versus a non-supported one. For example, mothers under the intervention scheme were 86% more likely to obtain antenatal care compared to mothers outside the scheme. Did the scheme pay for itself? Even though the paper does not investigate the scheme’s impact on total economic activity, it does capture a resource multiplier effect. More specifically, women chose to invest part of their added income into livestock rearing and petty trading. These changes were estimated to increase women’s earnings by 20% both two years and four years post-intervention. The program, therefore, improved the child’s human capital, as well as endogenously generated higher resource flows into the household. It, therefore, generated more value than it originally injected through the cash transfers.

There are many different ways of measuring interregional inequality, which can make it hard to make cross-country comparisons. The McCann (2019) paper compares the degree of the UK’s interregional inequality to that found in France, Germany, Italy, South Korea, Sweden, Japan and the USA, using different methodologies and datasets. Subject to the method used, the UK ranks from first to fourth most unequal among those eight countries. There are many imperfect ways of measuring interregional inequality… McCann (2019) distinguishes between two data types that can be used to measure a country’s interregional inequality: GDP per capita (or its related index, GVA per capita) and regional disposable income (RDI) per capita. Both have shortcomings: GDP per capita calculates the amount of value created at the workplace, instead of the residence location. Consequently, if people from one region travel to another for work, the value they create will be attributed to the latter. This can result in false conclusions that the residents of the emigrating region are much poorer than the ones in the immigrating one. Importantly, such migration patterns are not atypical if we are to think of large city centers such as London, where many people commute for work from different parts of the country. RDI per capita is derived from people’s wage and salary income, and it, therefore, excludes wealth inequality. Moreover, it can be easily influenced by fiscal policy which redistributes wealth across regions. In this case, RDI measures can fail to capture the economic dynamism of different regions, as they reflect instead government policy. Even though the author considers GDP per capita to be an overall superior indicator of a region’s comparative wealth, this is unlikely to be true for all cases. …and there are many ways to split a country The way one splits a country into regions can have large implications on subsequent regional comparisons and calculations. At the same time, data limitations do narrow down significantly one’s options. For GDP and RDI per capita interregional data there are mainly three types of data sources, all provided by the OECD. These are the Territorial Level 2 classification (TL2), Territorial Level 3 classification (TL3), and Metropolitan Urban data. For this piece, I will focus on TL2 and TL3, where TL2 offers the more granular segregation. … and there are also many ways to use GDP, RDI, and regional data! McCann (2019) separates between five methods of using the GDP and RDI per capita data to measure a country’s interregional inequality. These are presented below with the example of GDP. The exact same method can be used with RDI data: The ratio of the highest and lowest GDP per capita region (M1) The difference of the highest and lowest GDP per capita region, divide them by the country’s average GDP per capita (M2) The ratio of the highest 10% and lowest 10% GDP per capita regions (M3) The ratio of the highest 20% and lowest 20% GDP per capita regions (M4) The interregional Gini coefficient (M5) Where does the UK rank? The paper compares the UK’s interregional inequality with that of France, Germany, Italy, South Korea, Sweden, Japan, and the USA, using all discussed methods, data types, and regional segregations. The outcomes of this exercise are presented in Figure 1 below, where the UK was found to always rank the most unequal at the TL3, but not at the TL2 level. At the TL2 level, the UK was occasionally surpassed by Italy, Spain and the US. Data imperfections aside, the presented analysis does indicate that the UK is one of the countries with the highest interregional inequality within the group. Outcome variability also highlights how one may reach different conclusions, depending on the data and method used. Figure 1: The UK always ranks as the most unequal country at the TL3 level, but not at the TL2 level Data: Bonsai Economics, McCann (2019). Note*: no USA data available. Note**: no France, Germany, Italy, Spain, USA, data available.

In the third chapter of the book ‘Constitutional Crisis in the European Constitutional Area’ (2015), Scheppele outlines the context and implications of Hungary’s new Constitution, as formalized in 2011 and further amended by March 2013. The chapter outlines the variety of ways through which the Fidesz party used the new Constitution to consolidate their power by undermining the country's judicial, media, and other institutional independence. How was the new Constitution put into place? During Hungary’s transition away from communism in 1989, uncertainty surrounding the right framework for the newborn democracy led policymakers to write an easily amendable Constitution. More specifically, the only requirement to re-write the Constitution was a simple two-thirds parliamentary majority. This condition was instrumental in the country’s authoritarian switch under the Fidesz government. In the April 2010 general elections, a weak economy and a series of scandals led to the widespread unpopularity of the Sociality Party (MSzP), who had been in power for the previous eight years. Consequently, the right-wing Fidesz party won 53% of the votes, which translated into 68% of the parliamentary seats. This placed the party in an unprecedented position of power: by controlling two-thirds of the parliament, they could single-handedly re-write the Constitution, as they did shortly after. In fact, they proceeded despite not having campaigned for such a radical change, which caused their popularity to plummet to just 15% in opinion polls once their plan was revealed. Moreover, even after the Constitution’s establishment in 2012, they amended it another four times in its first 15 months. In March 2013, the Fidesz government passed the ‘Fourth Amendment’, a 15-page change to the new 45-page Constitution. The changes led to the consolidation of power at the Fidesz party, compromising the country’s democracy. In what ways did the new Constitution compromise Hungarian democracy? In their re-write of the Hungarian Constitution, the Fidesz government accumulated incredible amounts of power by consolidating their control over the judiciary, media, and political institutions. More specifically, the election process for numerous key roles was switched to a 2/3 parliamentary majority, which effectively allowed the Fidesz government to appoint its own allies. Some important examples of this practice are outlined in Figure 1 below. Figure 1: Key roles which the March 2013 Constitution selected by a 2/3 parliamentary majority Data: Scheppele (2015), Bonsai Economics. The National Judicial Office (NJO) selection was particularly important. This institution was first created in the new Constitution, and its President controlled the hiring, firing, and promotion of all judges in the system. Moreover, the Media Council had the power to levy heavy fines on media, and the National Budget Council could veto all future budgets which added to the country’s debt. Unless a 2/3 majority was formed again, the National Budget Council members could not be replaced, which translated into veto powers for the Fidesz party, even if it were to lose general elections. The above list is far from exhaustive of the ways the Fidesz party used the Constitution to increase their power. Another striking example is that the Constitutional Court was banned from reviewing constitutional amendments for substantive conflict with constitutional principles. This allowed the Fidesz government to add amendments such that one may not defame the Hungarian nation, which conflicts with the Constitution’s clause on freedom of expression. Conclusion The Fidesz party’s usage of the Constitution writing process to consolidate their own power is a great reminder of the Constitution’s importance in controlling government. An easily amendable Constitution offers a weak defense to a country’s democracy, a risk for which Hungary is paying a heavy price. The question is raised about whether a stricter original Constitution would have been enough in itself to prevent the country’s shift towards authoritarianism.

North (2003) attempted to solve the puzzle of economic change. According to North, the structure we impose on our lives to reduce uncertainty accumulates from prescriptions and proscriptions, which produce a complex mix of formal and informal constraints embedded in language, physical artifacts, and beliefs. It is beliefs that connect “reality” to the institutions. The dominant beliefs, that is, of those political and economic entrepreneurs in a position to make policies, over time result in the accretion of an elaborate structure of institutions. These formal and informal institutions together determine economic and political performance. Entrepreneurs enact policies to improve their competitive positions, resulting in alterations of the institutional matrix. What follows are revised perceptions of reality, and therefore new efforts by entrepreneurs to improve their position in a never-ending process of change. Institutions (Why Daron Acemoglu is famous) The main purpose of institutions is to reduce uncertainty and put order to the natural chaos. Two kinds of uncertainties: one stemming from the environment and one from the human social structure. In the past, human dependence on nature resulted in the primacy of the former. Having largely controlled nature, we are now facing increasing uncertainty resulting from the ever more convoluted social construct. For example, the level of complexity in social transactions in a rural village in medieval England is vastly simpler than that of 21st century London. According to North, people cooperate productively when engaging in repeated transactions, when there is a theoretically infinite horizon for these transactions, when they are familiar with each other, and when there are small numbers of players in the cooperation game. Hence, we need appropriate economic and political institutions that keep the payoff of cooperation high or, in simple words, rules that motivate people to be nice to each other. Beliefs (what happens in our heads actually matters) The way in which the mind works is based on pattern-based reasoning. The neural networks of the mind gradually establish patterns by which they interpret the world, and the patterns become quite complex and elegant, as indeed many belief systems and ideologies are. Beliefs are also devised as a means of controlling uncertainty. Human beings theorize about the world of uncertainty all the time. We make decisions in the face of pure uncertainty, based on religion, beliefs, or ideologies. It is quite clear that our ability to make radical change depends on the way in which beliefs have evolved in society, and the degree to which that set of beliefs is amenable to the kind of changes that we think are essential. Another relative concept is what we broadly define as culture. Culture is a cumulative (due to the pattern-based reasoning of the mind) structure of rules, norms, and beliefs, that we inherit from the past, that shape our present, and that influence our future. Example: Soviet Union: This is a story of perceived reality, inducing a set of beliefs, which in turn induced a set of institutions to shape the society, which in turn introduced at the margin incremental policies, which in turn altered reality, which in turn, went back to revising beliefs. Figure 1: Illustration of how our perception of reality and policies are interlinked Data: Bonsai Economics, North (2003). Conclusion Economic change is defined by the interplay between institutions, beliefs, and norms. We can conceive of the process as a circular flow, in which we have initial perceptions of what reality constitutes. Those perceptions in turn lead to the construction of a set of beliefs, ideologies to explain that reality and to explain the way that we should behave. That in turn leads to the creation of an institutional structure, or an institutional matrix, which then shapes our “world”. And as our beliefs about that reality incrementally change, we enact policies that incrementally modify that institutional structure. An incremental change is always constrained by path dependence. That is, the existing institutions constrain our choices. As we make those choices that are incrementally altering policy, we are changing reality. And in changing reality, we are changing, in turn, the belief system we have. That circular flow has gone on ever since human beings began to try to shape their destiny.