Economic Lessons from Abroad: Workers, Wages, and Inequality

There are many varieties of capitalism, and, given our current travails, we in the U.S. are starting to realize that we may have a lot to learn from other ways of organizing the economy. 

By law, half of the board of directors at German companies are elected by the workers through a system of "works councils." This is a remarkable fact, and introduces all sorts of different incentives into corporate strategy (as compared to a narrow focus on shareholder value).

Adam Davidson, writing in the NY Times Magazine this week, notes the "beneficial constraints" the German system of worker/capital "co-determination" has on manufacturing there.  Similarly, Davidson shows how Harley Davidson has worked with his highly paid and skilled workers to turn around their failing production. He wonders if this would have been possible without experienced union workers.   

(I write about co-determination in my new book, and have blogged about VW's work's councils and their efforts to institute one at their new Chattanooga facility.)    

And it is not just our other OECD countries that have lessons--and cautionary tales--to offer. Levels of income inequality in the U.S. have over the last decades approached the level of developing countries. The Times today reports that middle class consumption is steadily eroding--from hotels to appliances to restaurants, the high-end and the low-end are growing at the expense of the middle. The Harley workers appear to be the exception. This may result in what Alain de Janvry, writing about developing countries, calls a "disarticulated economy," put simply, one in which workers cannot buy what they make, the opposite of the Fordist promise (to pay workers enough to afford the cars they make).       

Brazil in recent years has made great strides in re-articulating its economy, pulling millions into the middle class and stimulating domestic consumption. Perhaps, then, we should look to Brazil as well as to Germany for economic policy ideas.

Distribution of Value in Anglo-American and German Firms (based on Vitols 2004:371)

	Anglo-American (early 1990s)	Germany (early 1990s)	Germany (late 1990s)
labor	62.2%	85.3%	78.4%
credit	23.5%	5.4%	4.3%
government	14.3%	5.2%	6.8%
retained earnings	3.2%	5.2%	7.8%
dividends	15.0%	2.0%	2.8%

Positive Anthropology and Public Planning

Social scientists, and anthropologists in particular, bring what should be a privileged perspective to public policy debates. Taking as our starting point not idealized theory (say, of rational actors) nor (hopefully) partisan moralization, anthropologists look at, and take seriously, what folks actually say and do.  This deceptively simple methodology-cum-epistemology can produce policy insights that respond to actual conditions and the hopes and aspirations that fill our lives.

Mark Oppenheimer, in a recent NY Times Magazine piece, discusses the ethnography of public spaces conducted by sociologist William H. Whyte in the 1960s and 1970s and more recently picked up again in recent years by Keith Hampton. By actually watching people in places like NYC's Bryant Park and talking to them about what they valued, Oppenheirmer writes that Whyte and others realized that is we knew how "the placement of benches, or a plaza's orientation to the sun, affected people's enjoyment of a public space, then we could go beyond mere observation into the realm of smarter policy. We could make people happier."

Interestingly, Hampton's follow-up studies show that use of the public spaces in his sample has gone up over the last decades; that there are many more women in those public spaces; and that there is more, not less, social interaction going on despite the ubiquity of cell phones and other technology.

Wellbeing and Wages

Inequality has a huge impact on wellbeing, more so than even absolute income levels. A lot of what we feel about how we are doing, depends on how those around us are doing and our relative standing.
President Obama has been turning attention to inequality lately, and development measures have long taken it into account in terms of general economic wellbeing. And a number of recent studies from psychology, behavioral economics, and management not only help explain this, but point the way toward more optimal solutions:

Mat Richtel reports on recent research that suggests "a deeply rooted instinct to earn more than can possibly be consumed, even when this imbalance makes us unhappy" and that higher income levels may promote "mindless accumulation." In an experimental setting (and uses pieces of Dove chocolate as pay), researchers found that higher earners would work harder to accumulate more chocolate than they would be able to eat (during a limited period after the round of play), while low earners were content to work at a more relaxed pace. The pull of endless accumulation, it seems, can be so powerful as to overwhelm choices that might result in greater overall wellbeing.

Adam Davidson, in his excellent column in the NY Times Magazine argues that "paying [workers] and treating them better, will often yield happier customers, more engaged workers and--surprisingly--larger corporate profits." Citing research by Marshall Fisher (Wharton School) and Zeynep Ton (M.I.T.), he shows that good paying jobs are not only better for workers but also in many ways for the bottom line, to less turnover to more engagement.

Purpose and Wellbeing

As Tony Schwartz (in the NY Times) argues in a recent column: a sense of purpose--contributing to something meaningful and larger than yourself--is a core element of life satisfaction, wellbeing, and the good life. He quotes Nietzsche's observation: “He who has a why to live can bear with almost any how.”

We often hear purpose and passion as extolled virtues these days: find your passion, live life with a purpose. This is the sort of self-help that resonates with the demographic represented by readers of the Times.

Indeed, yesterday's paper ran an article about Martha Beck ("the merchant of happiness") who has built a small empire around life coaching: she says “Everything I’ve ever taught in terms of self-help boils down to this — I cannot believe people keep paying me to say this — if something feels really good for you, you might want to do it. And if it feels really horrible, you might want to consider not doing it." 

But, as readers of this blog will know, having a larger purpose in life is not the exclusive purview of the affluent and middle classes. The poor as well as the rich give purpose to their lives; it is in many ways what makes us human. And such larger purposes must not be as lofty or laudable as the passions featured in the paper: political extremism, racist ideologies, and other such projects may increase individual wellbeing among their adherents while harming collective goods.

Culture as Strategy, and the Relevance of Anthropology

The demand for anthropological knowledge is great. This might surprise many of my fellow anthropologists--there is growing lament about our irrelevance in big debates--and certainly all those graduate students looking at a bleak job market. But I almost daily I hear from colleagues in medicine, political science, business, and other fields how they try to incorporate notions of "culture" (our discipline's signature concept) into their work and business practice.

Most often, the ideas of culture thus borrowed would seem antiquated to a contemporary anthropologist. Treated as a static thing with clear boundaries, the notions of culture used in other fields most resemble early trait-list approaches. In current parlance, such views do representational violence to the folks they hope to describe. Today, we see culture as dynamic, creative, imbued with power, fluid: Arjun Appadurai argues that it should be used as an adjective (cultural) rather than a noun (culure).

In translating this into other fields, we might look at culture as strategy, intentional orientations toward the future that guide decisions but also depend on serendipity, adapting to changing circumstances, and shifting hopes and dreams. For development programs, public policy, and business, this means that being culturally "appropriate" isn't about handing your business card in just the right way or knowing dinner table etiquette, but taking seriously the aspirations of those with whom we collaborate, seeking common futures.

The Financial Times reports that the Swedish appliance maker Electrolux has started to take some strategic direction from emerging markets, essentially breaking down the walls for a division for poor places and another for rich ones, and that this has invigorated their growth in both markets.     
 We may also seek to orchestrate serendipity and cultural creativity through institutional and architectural arrangements.  Michael Soto reports on Institutionalizing Serendipity in a company environment, a model with much broader implications.  (And a conversation with Michael yesterday inspired this post.)     

Higher Pleasures, the Work of Wellbeing, and Public Policy

Perhaps the good life is not a state to be obtained, but, as Aristotle suggests, it is the the pursuit and the journey that give meaning and fulfillment. Striving for the good life involves the arduous work of becoming: creating meaning, aspiring for something better, the act of becoming the sort of person and living the sort of life one deems worthy and desirable. 

Thus, the good life is not made up of simple "happiness." It requires trade-offs, often forgoing hedonistic pleasure for long term goals. I have previously written on the distinction between hedonic happiness (are you happy right now?) and eudaimonic wellbeing (with its longer horizon of life satisfaction), showing that the two can well be at odds with one another.

Steven Mazie, on BigThink.com, argues that the current fashion for happiness studies distracts us from what is really important: "Not every costly, challenging endeavor we take up is a recipe for happiness, but our world and our individual lives would be sapped of all meaning if we made life plans based on the results of happiness studies like these [measures of hedonic happiness]. Who would learn Chinese or advanced calculus? Who would spend all night volunteering in hurricane relief emergency shelters? Who would ever have a child?"

Mazie calls on John Stuart Mill's distinction between higher and lower pleasures in his attempt to calculate utilities: "If, on reflection, we would refuse to give up Pleasure A in exchange for a bottomless trough of Pleasure B, that’s a good sign Pleasure A is a higher pleasure for us. If we wouldn’t forfeit our religion or our children for the promise of a keg of cold beer that never runs dry, we should consider the former to be more valuable than the latter. Lower pleasures are fantastic — and reading the results of laughable happiness studies may well be one of them — but they are not the pulp of life."

Indeed, when we look to provisioning the good life as broadly as possible, as we should in markets and government, we must take care not to privilege hedonic happiness over long-term wellbeing.

(On a separate but related note: The WSJ reported this week that its CEO Council identified five top priorities for the country: immigration reform, education reform, tax reform, business-government cooperation, and health-care quality. It is remarkable not only that these could all have been pulled from an Obama speech, but also that they are all broadly consistent with a wellbeing approach to policy, even if the devil is in the detail of means to these ends.)

An Ethics of Possibility and a Positive Anthropology

Arjun Appadurai argues that our society struggles with a tension between “the ethics of possibility” (of hope, aspiration, desire) and the “ethics of probability” (of systematized rationalities, risk management, and cost/benefits). And the ethics of probability is currently crowding out the realm of possibility. In his timely new book (The Future as Cultural Fact), Appadurai calls for a renewed commitment to an ethics of possibility "grounded in the view that a genuinely democratic politics cannot be based on the avalanche of numbers—about population, poverty, profit, and predation—that threaten to kill all street-level optimism about life and the world. Rather it must build on an ethics of possibility, which can offer a more inclusive platform for improving the planetary quality of life and can accommodate a plurality of visions of the good life.” (299-300)

Indeed. Reading this book, I was both exhilarated and a bit crestfallen that Appadurai so eloquently makes a number of arguments that I thought were my own, and that feature in my forthcoming book The Good Life (Stanford U Press).  Appardurai calls for greater attention to the "capacity to aspire" and the politics of hope in understanding development, wellbeing, and the economy. As I also argue, wellbeing requires a sense of aspiration, hope for the future informed by ideas of the good life, and a commiserate degree of agency, a sense of control over one's own destiny.  Living up to the expectations of particular values is in many ways the stock and trade of human existence; and it is this forward-looking, aspirational quality that drives agency. The will is important, but there also has to be a way, and the effectiveness of aspiration and agency is often limited by available opportunities, the legal, social, and market structures.

Such a perspective opens the door onto a “positive anthropology.” Anthropology is more comfortable offering critiques than positive alternatives, but the possibility exists to combine our critical proclivities with non-prescriptive, ethnographically informed positive alternatives that engage public policy debates. If a society’s goal is to have folks live meaningful and fulfilled lives—and not just increase income and consumption at all costs—then we should look to ways to help folks realize their longer term goals, the moral projects of their lives, affluence (and its converse, poverty) as seen in all of its multiple dimensions. This is to advocate studies of economic behavior that work between the “is” and the “ought” of David Hume’s distinction, between how the world can be empirically shown to work (the “is”) and how the competing and diverse value systems that anthropological research documents can be linked to moral reflection about things might be different (the “ought”).  

In Appadurai's words: “we need to commit ourselves to a partisan position, at least in one regard and that is to be mediators, facilitators, and promoters of the ethics of possibility against the ethics of probability.”

Prosperity, Poverty, and Wellbeing

Prosperity, wellbeing, the good life--this elusive condition that we are all presumably striving for--is notoriously difficult to measure. We have long used income as a shorthand for wellbeing, but we are now realizing how limited that is as a proxy. An adequate income is certainly necessary, but alone is insufficient, for wellbeing. Part of the problem in measurement, as I argue in my forthcoming book on The Good Life, is that often precisely what is most valuable in life in least quantifiable, such as dignity, aspiration, and larger purposes.

Nonetheless, the urge to measure and rank countries produces lots of interesting data. The Legatum Institute's prosperity index uses 8 equally weighted sub-indices to calculate prosperity:
1. Economy
2. Entreprenuership and opportunity
3 Governance
4. Education
5. Health
6. Safety and Security
7. Personal freedom
8. Social capital
Nathan Gamester reports their 2013 findings in a recent issue of the Harvard Business Review, and there are several interesting results:

• Norway, Switzerland, Canada, and Sweden come out on top
• Since 2009, the United States has dropped from 12th to 24th
• Germany has gone from 16th to 9th
• Guatemala has drop from 82nd to 90th (out of 142).

New World Orders

Bill Gates has been funding research into a promising new type of nuclear reactor, but since a prototype will cost upward of $5 billion, he is looking to China to build it, the NY Times reports.  Gates must think that the U.S. doesn't have that kind of cash for such a venturesome venture anymore. He has good reason: the American Society of Civil Engineers estimates that we have a $3.6 trillion infrastructure deficit (a D+ on their report card); we are just trying to manage keeping our cities from flooding, much less pursue big Eisenhower- or Kennedy-esque visionary projects.

There have been so many new world orders announced over the last decades, I suspect we are a bit inoculated to the power of the phrase.  But, whatever you want to call it, political and economic relations (and soon to follow: social and cultural relations) have undergone a sea shift in the last few years in ways we are just now starting to understand.  The heady post-Cold War, one-superpower, economic boom years provided the U.S. a false sense of security and stability (one that survived the terrorist strike of 9/11 but not the economic hit of 2008). Over the last few years, that has given way to a new and fluid role that will require a sort of collaboration that we haven't been able to fully wrap our minds or our policies around

Bill Gates looking to China for capital (not just the site of cheap production and rampant piracy), the U.S. being sidelined by Russia in dealing with the Syrian conflict, Brazil canceling a state dinner with President Obama over the NSA's spying in that country: all things that would have been unimaginable ten, or even five, years ago. But now there is a new norm.  This doesn't mean that the U.S. has fallen from its superpower status, but rather that it is operation in a different world order that will require more finesse and collaboration.

Immigration from Mexico has long meant the flow of largely unskilled and undocumented labor north to the U.S.  With the economic downturn the net-flow reversed, as immigrants saw more and better opportunities in Mexico than in the land of opportunity.  Even more remarkable: the rise of a significant, albeit modest in absolute numbers, net positive migration of professionals to Mexico (from the U.S. and elsewhere).  So now not just low-wage labor is migrating to Mexico, but affluent professional jobs as well.  I have previously written here about the dramatic rise of Mexican foreign direct investment in Tennessee     

In academia, no longer are we able to simply pluck the best researchers and ideas off from the global South. The changing economic relations, and the U.S.'s reduced role, make substantive collaborations imperative--those who are investing the capital get a real place at the table.  I was recently on a delegation for a U.S.-based professional association to China.  The goal was to further collaborations with our (state sponsored) Chinese equivalents, with the subtext that most of the bigger project planned would be funded by the Chinese. Brazil pays for almost all of our foreign students from that country, and the Sao Paulo-based Lemann Foundation is making major investments in Brazilian studies in the U.S.

The U.S. needs to figure out how to operate in this new global environment, from infrastructure investment to immigration reform to support for area studies so that we can learn about the places we need to engage.  

Why Government Shouldn't Be Run Like A Business

Nice piece by Minute MBA on why government should NOT be run like a business: Created by OnlineMBA.com

Germany's Social Capitalism in Tennessee, and back home

As a key part of their strategy to become the world's largest car manufacturer, Volkswagen has opened a new plant in Chattanooga, Tennessee.  While a foreign auto maker opening a factory in the south is nothing new, VW brings a particularly German culture of organization and labor relations.  The Economist reports that VW, working with their main German union IG Metall, plans to introduce a "works council" in their Tennessee facility.  Required by law in Germany, works councils are a key component of the German system of co-determination in businesses.  Works councils operate ostensibly outside of the union structure, and through them labor elects almost half of the company's board of directors.  This structure brings together labor, management, and capital to help formulate policy and strategy.  And by balancing different stakeholder interests, co-determination tends to favor long time horizons and slow, steady growth, sacrificing some returns for the promise of security.  

It seems that everyone--except, probably, a sizable portion of the Greek protestors in the streets of Athens--has praise for the German economic model in our current turbulent times.  This is a far cry from the conventional wisdom of ten years ago when I started studying what the Financial Times terms Rhenish Capitalism and what the Germans themselves (now proudly) call Soziale Marktwirtschaft (a "social market" economy).  Then Germany's slow growth and high unemployment were seen as emblematic of all of Old Europe's ills, something to be scoffed at rather than emulated.

But times change.  Perhaps slow and steady wins the race.  It is, at any rate, all those German euros in the bank that is keeping Greece afloat.  Programs that encourage cutting back hours rather than laying off workers, investments in infrastructure, among the healthiest public finances not just in Europe but in the world--there is a lot to be admired in the way Germany has handled the financial crisis.  But it comes at a cost, high taxes and high costs of good.  James Surowiecki, writing in last week's New Yorker, says that a long term fix for the U.S. economy will require "consumers to accept significantly higher, and steadily rising, prices."  That will be a tough sell in this country, even if it does recall Henry Ford's pledge to pay his workers enough to afford to buy the cars they were producing.

VW's corporate culture is deeply committed to works councils and co-determination, and they have exported the model to Mexico, Brazil, and China.  What they do in Germany is mostly mandated by law, but in their global operations the company goes far beyond what is required.  They must see value in the proposition.  All the same, while works councils may be on the rise in Tennessee, they are declining slightly in importance in Germany as boards begin reorganizing under European regulations that sidestep co-determination requirements.

Brazilian Protests and Frustrated Freedoms

The recent and widespread protests in Brazil present something of a paradox: Brazil's economy has been booming over the last decade (it is, after all, the "B" in BRICS).  Tens of millions of poor have risen into the demographic middle class, consumption has risen across the board, and the markets (despite recent setbacks) have boomed.  So what is there to complain about?

Bart Victor and I argue in a recent paper in World Development that development can, in certain circumstances, raise incomes and aspirations beyond what is actually achievable given social and political structures, resulting in "frustrated freedom" and a diminished sense of wellbeing.

This helps explain the Brazilian protests.  James Surowiecki, writing in his consistently insightful New Yorker column, about "Brazil's Middle Class Militants" observes that "the protests have been widespread, popular, and, most striking of all, dominated by the middle class—the very people who have benefitted from the boom."  And precisely because of the boom, these folks' aspirations and expectations of the state and market have risen.  And yet they are more inelastic, not contracting in lockstep with the economy in recent months.

Indeed, using 2012 AmericasBarometer data, LAPOP researchers Mason Moseley and Matthew Layton ("Prosperity and Protest in Brazil: The Wave of the Future for Latin America?") find that "rising education levels, increased use of social media, and widespread dissatisfaction with
public services emerge as critical determinants of contentious politics . . . [and] suggest that across Latin America, the past decade of strong economic growth, advances in education and increased
access to social media may portend a new era of protests . . . ."

Rising aspirations can fuel development in countries like Brazil--look at the boom there in consumer credit and durable household goods.  Yet such aspirations also change expectations of governance and when aspirations exceed opportunities, intense frustration and popular protests can result.