Venetian capitalism, 1515 and 2015

I’ve had a short break to celebrate my 25th wedding anniversary, and we went to Venice. One of my books was Peter Ackroyd’s Venice: Pure City, which has lots of interesting facts but is frankly a bit long and dull. I did enjoy, though, the sections about the Venetian economy. It was the engine of the world economy in the 16th century, a bustling, dynamic trading economy, built on a marsh with no natural resources apart from lots of fish.

Angus Maddison’s The World Economy: A Millennial Economy is excellent on this, and on the tides of economic history more generally; one of the fascinating things is how different places have had their moment. Italy’s was the during Renaissance, and look at it now. Maddison writes of the Venetian Republic: “It created political and legal institutions which guaranteed property rights and the enforceability of contracts. It was a pioneer in developing foreign exchange and credit markets, banking and accountancy. It created what was effectively a government bod market. … Its fiscal system was efficient and favorable to merchant profits and the accumulation of capital.” On the accountancy, Jane Gleeson-White’s Double Entry: How the Merchants of Venice Created Modern Finance is a great read.

   

Venice was also the first centre of commercial publishing thanks to Aldus Manutius (there’s an exhibition on him now at the John Rylands library in Manchester). Ackroyd writes: “Printing was the first form of mass production technology, creating identical objects at identical cost.” Venice pioneered commercial printing and publishing, although the activity led to complaints that the technologically-driven abundance of books was making people less studious, a vulgarising influence. Sounds familiar!

One thing that intrigued me in Venice (the city, not the book) was the fact that the identity of the sellers of cheap handbags and selfie sticks in the streets has shifted. Last time I was there, five years ago, these men were mainly Senegalese. This time they were mainly South Asian. I wonder how these shifts happen? Of course, the city’s main trade these days is tourism, and all the services and goods that requires – like so many other beautiful places whose earlier economic function has vanished into the mists of time.

Beautiful - and redundant?

Beautiful – and redundant?

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Globalized Inequality

Francois Bourguignon’s The Globalization of Inequality is an interesting companion to Tony Atkinson’s Inequality, which I reviewed here recently. It’s a different kind of book, a relatively short argument about why and how to make the globalization process fairer, as contrasted with Atkinson’s longer and detailed description and analysis of inequality in the UK with a substantial list of policy recommendations. It’s useful to have the global picture alongside the national one, however, because the story globally is of much increased incomes in the middle of the distribution in a few countries – largely China – as well as gains among the richest groups.

In the first chapter and its data annexe Bourguignon sets out the figures in careful detail, distinguishing between increases in inequality within countries and changes between countries. “Inequality in the standard of living between countries has started to decline … On the other hand, inequality within many countries has increased.” The book’s central question is then whether these two phenomena are related, linked by the process of globalization, of trade and investment flows between high and low (average) income countries. This is addressed in the second and third chapters of the book. He answers broadly yes, through the far greater intensity of competitive forces operating on industries in the rich economies that couldn’t cope – although he also attributes a significant part of the explanation to the politics of deregulation and tax cuts, and the expanding role of finance.

The final part of the book turns to whether anything ought to be done about inequality in this global context, and if so what can be done. Bourguignon argues that it is worth trying to get the best of both worlds and combine the trend towards less inequality between countries while tackling greater inequality within countries. He rejects the idea of a sharp trade-off between equity and economic efficiency on the grounds that inequality of the degree seen now in the US and UK is politically and institutionally destabilising. Indeed, he says, many aspects of inequality inhibit the efficient operation of markets.

The final chapter turns to policies, and it is the least satisfactory. This is in large part because in a short book like this, there is little room for the persuasive detail. However, I don’t think the policies he favours – more development aid for the poorer economies, taxes and transfers within the rich economies – would be particularly effective. I’m far more in sympathy with Atkinson’s emphasis on market incomes, and the need to address the structures of markets that are the root causes of the increase in inequality.

Having grumbled about that, it is certainly important to keep the biggest of big pictures in mind when thinking about inequality, even at the national level. The fact that the economy is globalized is an important factor in any assessment of the causes of inequality and therefore what it might be practical to do about it.

Inequality – What is to be done?

I finished Inequality: What Can Be Done? by Tony Atkinson, and think it’s great. If you’re only going to read one book on the subject, this is more useful than Piketty – although I have Francois Bourguignon’s forthcoming (May) The Globalization of Inequality in my in-pile and have high hopes for that one too, as a companion work.

 

As noted in my previous posts, Atkinson’s Inequality starts out very carefully and clearly with the data, highlighting the fundamental point that although there are some common underlying trends tending to drive greater inequality in market incomes, different countries have had different outcomes in terms of post-tax, post-transfer incomes (and in access to public goods and services too, but this is too hard to measure). Even when it comes to the skill bias of technological change, on which many economists (me included) have placed a lot of emphasis as an explanatory factor, Atkinson argues that this is not a given of the universe. The direction of investment spending and substitution is shaped by the menu of opportunities firms face, and that is not exogenous.

His main focus is how firms make these choices and exercise their market power. What constraints do they face? This depends on the state, and on corporate governance, and on finance. All of these offer paths to influencing income distribution.

The second part of the book offers s series (15) of policy interventions to reverse the increased income inequality – there is a UK focus in the recommendations. I don’t agree with all of them, or at least not without further thought. For instance, he recommends implementing competition policy with explicit distributional considerations. However, I love the fact that there are 15 suggestions – enough of books that pretend there are simple solutions! When it comes to inequality, there’s a generation’s worth of institutional and political change behind the current situation so narrowing the income distribution will take work.

One of Atkinson’s key proposals is a vehicle for assessing and co-ordinating what will be needed is a new Social and Economic Council, with members drawn from the old tripartite of unions, business and government but adding also non-governmental organisations and consumer groups. He includes also property taxation – a proportional tax on regularly uprated property values. Every economist I know in the UK (many) recommends reforming property taxation – I was much struck by John Muellbauer’s FT column today calling for an updated and progressive council tax, with an equity transfer instead of cash payment option. Kate Barker’s excellent Housing: Where’s the plan? included a look at capital gains tax on the main dwelling.

There are many other suggestions in the book – capital endowments for all young people; a job guarantee for those out of work for more then 12 months; and more. The length of the list could be depressing (you mean we can’t just tax plutocrats?) but I found it ended up cheering me because there are so many good policy ideas here that perhaps a government could make a start with just a few and take it from there.

Anyway, UK folks, read this book and then for comparison read your favourite party manifesto. Now, onto the global picture.

The Beatles and class struggle

Inequality by Anthony Atkinson is terrific. I’ll review it properly when I’ve finished. Meanwhile, one thing I really like about it is that he is heading toward policy proposals rooted in a reasonably detailed structural analysis of how the economy works, rather than in abstract macro theory. You get a sense of this in the ‘Setting the Scene’ section from his references to Michal Kalecki’s Class Struggle and the Distribution of National Income and J.K.Galbraith’s American Capitalism. Yes, we are talking about market power and the political power to change the rules of the game that flows from it. If the way markets work is flawed, the macro outcomes will be flawed too.

   

There are some terrific nuggets of information along the way. To get the UK’s Gini coefficient back to where it was in the 1960s when the Beatles were playing just using taxes and transfers – a 10 point reduction from its current level – income tax would have to rise by 16 percentage points. The political impossibility of post hoc redistribution using only taxation is clear. “This is why many of the policy measures proposed in this book are directed at making the distribution of market incomes less unequal,” writes Atkinson.

Not all numbers are equal

I’ve started reading Tony Atkinson’s new book, Inequality: What can be done? and already think it a much better book than the famous Capital in the 21st Century (which for me was marred by the half-baked r and g business – see for example the Jaume Ventura slides here – as well as the lack of any practical policy suggestions).

Although not far into Inequality, I completely and utterly agree with the following, in a chapter describing carefully the sources and character of the data (something else on which Piketty is actually rather weak – hence the challenge much reported this week from a graduate student at MIT):

In seeking to draw lessons from the statistics on inequality, we have to be confident in the quality of the data we are using. This is why I begin this chapter by describing and evaluation the sources of evidence on which scholars of inequality can draw. Such scrutiny is essential. All too often economists race ahead, drawing conclusions from figures that happen to be there, without asking why the data are suitable.”

Serendipitously, while reading this I’ve also been thinking about a keynote I’m giving soon at an OECD conference on GDP and the national accounts statistics in a couple of weeks’ time. All the thousands of studies and political claims resting on GDP growth figures are based on shifting sands, and we economists need to think far more carefully about what they take to be evidence for strong claims. There are some powerful examples in a paper presented by Samuel Williamson and Enrico Berkes recently at the Economic History Society conference.