August 24, 2018

Going Viral: How a Dictatorship Suppresses Ideological Infection

Writing about web page https://www.rfa.org/english/news/uyghur/infected-08082018173807.html

Sometimes it is said that a popular image or tweet or a video clip has "gone viral." That means that it has been shared from person to person many times, like an infection.

When we use this image, we think of ideas spreading on an epidemiological model. Some people have little resistance and so they are highly vulnerable. After just one exposure, they are taken over by the idea and become carriers. Then, they pass it on to more people like themselves who are also of low resistance. A pool is formed of people who pass the idea in question backwards and forwards and, in the process, expose many others. These others might be more highly resistant, and are captured by the idea only after repeated exposure, which happens over a period of time. Eventually, as more and more people are exposed more and more times, the infection will spread to everyone who is not for some reason immune.

The same model, according to which ideas spread like a disease, is often found in the practical thinking of authoritarian regimes. Such regimes often prescribe a particular set of ideas as "healthy" -- for example, obedience to the state and loyalty to the ruler, each embodying or personifying the nation. A source of danger to the regime is then the spread of "unhealthy" ideas, which might encourage disrespect of authority or public demonstrations of discontent. They worry that ideas about free speech or the accountability of rulers, if unchecked, might go viral, undermining the stability of the regime.

The epidemiological model also prescribes the remedy. Risks to public health are contained by keeping the community under continuous surveillance, by quickly identifying outbreaks of disease, and stepping in immediately to isolate the people who have become ideologically sick, preventing them from passing on their infection more widely.

This remedy can be seen at work today in China's province of Xinjiang, where the Chinese state is trying to manage the largely Muslim ethnic minority of Uighurs. On August 18, The Economist reported:

During the past year campaigners, academics and journalists have been shedding light on the detention for “re-education” of vast numbers of ethnic-Uighur Muslims in China’s far-western province of Xinjiang. On August 13th the topic was raised at the UN, when experts undertaking an audit of China’s policies towards ethnic minorities said they had heard that as many as 1m Uighurs are being locked away.

The Economist's report went on to cite a recording by the Xinjiang Uighur Autonomous Region communist party youth league, made last year and published on WeChat. The full transcript can be found on the Radio Free Asia website, and that's where I have taken the following excerpt:

In recent times, amid a growing heavy crackdown, a small number of people—particularly young people—have gone to re-education camps to study. However, their parents, friends and relatives, and the general public don’t understand the benefits of re-education, and as a result they are worried and fearful. So let us give answers to their questions and their concerns today.

Members of the public who have been chosen for re-education have been infected by an ideological illness. They have been infected with religious extremism and violent terrorist ideology, and therefore they must seek treatment from a hospital as an inpatient. In recent years, there have been violent incidents occurring in Xinjiang, one after another, instigated by the “three evil forces [of “terrorism,” “religious extremism,” and “separatism”], which has threatened the safety of people from all ethnic communities and caused serious damage and losses. These terrorists have one thing in common: they were infected by religious extremism and a violent terrorism disease.

The religious extremist ideology is a type of poisonous medicine which confuses the mind of the people. Once they are poisoned by it, some turn into extremists who no longer value even their own lives … If we do not eradicate religious extremism at its roots, the violent terrorist incidents will grow and spread all over like an incurable malignant tumor.

Although a certain number of people who have been indoctrinated with extremist ideology have not committed any crimes, they are already infected by the disease. There is always a risk that the illness will manifest itself at any moment, which would cause serious harm to the public. That is why they must be admitted to a re-education hospital in time to treat and cleanse the virus from their brain and restore their normal mind. We must be clear that going into a re-education hospital for treatment is not a way of forcibly arresting people and locking them up for punishment, it is an act that is part of a comprehensive rescue mission to save them.

In order to provide treatment to people who are infected with ideological illnesses and to ensure the effectiveness of the treatment, the Autonomous Regional Party Committee decided to set up re-education camps in all regions, organizing special staff to teach state and provincial laws, regulations, the party’s ethnic and religious policies, and various other guidelines. They mobilized the public to learn the common language [Mandarin Chinese], complete various technical training courses, and take part in cultural and sport activities, teaching them what is correct and incorrect … so they can clearly distinguish right from wrong … At the end of re-education, the infected members of the public return to a healthy ideological state of mind, which guarantees them the ability to live a beautiful happy life with their families.

Ideological illnesses are the same as physical illnesses, in that they must be treated in time, and should never be ignored and allowed to become serious. Otherwise, later we will regret it, as it will be too late … Being infected by religious extremism and violent terrorist ideology and not seeking treatment is like being infected by a disease that has not been treated in time, or like taking toxic drugs … There is no guarantee that it will not trigger and affect you in the future. If people don’t attend re-education class because there is no one to take responsibility for the household chores, or if they choose to run away from re-education, that can be considered being very irresponsible to themselves, their families and society.

You can see that the Chinese communist party youth league's model of the spread of ideas, expressed in this long quotation, is not intellectually consistent. The unhealthy ideas are sometimes called a "virus," sometimes a "poisonous medicine." But the general idea of ideological infection could not be clearer: "Ideological illnesses are the same as physical illnesses."

One feature of this perspective is that people who have been infected are not to blame (unless they refuse treatment). Another is that they are not seen as lost to the community; they can be saved (or they must help to save themselves). Nonetheless, as long as they are inflected by unhealthy ideas, they are a danger to the community as well as to themselves -- even if they are legally innocent of any crime. Therefore, compulsion is justified to treat them.

PS

Why am I interested? In another context, the Soviet KGB (security police) used the terminology of "unhealthy" ideas and behaviours, and of methods of "prophylaxis" (a medical term for prevention), all the time in internal correspondence and reports. If you would like to read more about this, there are some human-interest stories and more discussion in my book, One Day We Will Live Without Fear, especially chapter 5.


August 06, 2018

Brexit and the Rights and Wrongs of Austerity

Writing about web page https://warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/381-2018_fetzer.pdf

A great new paper by my CAGE colleague Thiemo Fetzer was in the news last week. It asks: Did Austerity Cause Brexit? Thiemo is one of those that know how to write a good abstract so, rather than try to summarize the paper in my own words, I’ll use his:

Did austerity cause Brexit? This paper shows that the rise of popular support for the UK Independence Party (UKIP), as the single most important correlate of the subsequent Leave vote in the 2016 European Union (EU) referendum, along with broader measures of political dissatisfaction, are strongly and causally associated with an individual’s or an area’s exposure to austerity since 2010. In addition to exploiting data from the population of all electoral contests in the UK since 2000, I leverage detailed individual level panel data allowing me to exploit within-individual variation in exposure to specific rules-based welfare reforms as well as broader measures of political preferences. The results suggest that the EU referendum could have resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms. These reforms activated existing economic grievances. Further, auxiliary results suggest that the underlying economic grievances have broader origins than what the current literature on Brexit suggests. Up until 2010, the UK’s welfare state evened out growing income differences across the skill divide through transfer payments. This pattern markedly stops from 2010 onwards as austerity started to bite.

Thiemo’s paper has already been widely reported (e.g. hereand here). The reports have tended to sustain a simple political narrative: In 2010, as Chancellor of the new coalition government, George Osborne set the course towards austerity. Austerity provoked the rise of UKIP and anti-EU sentiment. By implication, austerity was a mistake for which we are paying now with Brexit.

Not so fast.

Thiemo’s findings should be considered in the context of another story in last week’s news. In the Financial Times on 2 August, Chris Giles reported on the latest fiscal sustainability report of the Office of Budget Responsibility The report showed that, if the economy grows and if we continue to tax and spend on pensions, long-term care, health, education, and welfare at current rates, by 2050 there will be no funding for anything else. The government will be unable to pay anything towards defence, police, transport, arts and museums, business, and local authority services such as bins, libraries, and parks.

Driving this conclusion is two problems. One, the British population is ageing. Two, the economy is growing more slowly than in the past. Spending on old age will necessarily encroach more and more on a pool of resources that is finite and will fail to keep up.

In an era of low-interest rates it is tempting to suppose that the government can simply borrow more to pay for these things. Certainly, it can do this for a while. But that can only kick the fiscal can down the road. As deficits rise and once more accelerate the growth of the public debt, the burden of debt interest payments will also grow more rapidly, tightening the screws ever more harshly.

What does this have to do with Thiemo’s paper? It affects the implications that may be drawn.

First, when slow growth makes deficits unsustainable, austerity is inevitable at some point. Certainly, this does not deprive us of all choice. For example, we can choose to have austerity now or later. But for every unit of austerity that we postpone now, we will have more than one unit down the road; that's in the nature of the accumulation of debt. As Chris Giles points out, the government’s relaxation of fiscal targets in 2016, and its more recent boost to health spending, have brought forward the point at which the government will run out of money for “other” spending by six years. We can also choose who will bear austerity’s burdens. Are welfare benefits too generous? Should graduates pay higher contributions? Should companies pay higher taxes, or their shareholders, who include both relatively wealthy households and the pension funds responsible for the retirement incomes of the middle and lower classes?

These are all choices that could have been made differently, and that we can still make. But, as growth prospects diminish, what we cannot do is choose not to have austerity at all, ever.

Second, if you’re thinking that the government should not have imposed austerity in 2010 because that policy induced people to turn to UKIP and Brexit, think again. Rightly or wrongly, George Osborne was trying to return the UK economy to fiscal sustainability by following transparent targets and rules. The purpose of such rules has been to try to bind governments, so that they do not exploit their discretionary powers to time taxing and spending decisions in order to reward supporters, win their votes, and so manipulate elections.

Which is a good thing—right?

If your present thinking is that Thiemo’s paper shows that austerity was a bad policy, ask yourself what you thought of austerity before you knew his findings. If you already had reasons to believe that austerity was a bad policy, then stick to them, whatever they were. Thiemo’s findings have not added to them.

If, perhaps, Thiemo has changed your mind—previously, you thought austerity was necessary, and now you have turned against it—then be careful. The risk you face is that you may soon get what you now wish for: a government that systematically manipulates its electoral base with fiscal generosity that must be paid for later.


March 15, 2018

The Skripal Affair: Tit for Tat

Writing about web page http://www.bbc.co.uk/news/world-europe-43412702

This morning I had the pleasure of talking with Trish Adudu on BBC Coventry and Warwickshire Radio about the Russian state and skulduggery in Salisbury. In five minutes we only touched on a small proportion of what was covered in my notes. Here’s my full commentary on recent events.

Who is to blame for the Skripal affair?

We don’t yet know the persons directly responsible for the attempt to murder Sergei and Yuliya Skripal. Without that knowledge, why does the Russia government not get the benefit of the doubt? First and foremost, Russia’s rulers have form. Putin presides over a conspiratorial regime. Too many opponents, critics, and whistle blowers have come to a bad end under his rule.

The Russian government and connected Russians have offered a long list of alternative candidates for the crime: MI5, Ukraine, Georgia, the United States, and, bizarrely, the family of Yuliya Skripal's boyfriend, seeking to break his connection to a traitor. The fostering of doubt by scattering such allegations is also part of this form.

Second, Novochok, the nerve agent used in Salisbury, is a Russian product of the Cold War. It was intended to be undetectable, but decades have gone by and it is no longer. Russia claims to have destroyed all its stocks, but this is self-evidently not the case.

Third, yes, some third-party involvement is entirely possible. But that should not let the Russian government off the hook. There is a well-understood advantage for a party like the Russian state in using “third parties” to achieve goals by stealth that cannot be sought openly. Sometimes those “third parties” will go “too far,” whether by accident or design, but this is not necessarily an unwanted thing, because it increases complexity and improves the plausibility of denial.

If you think of the various ways in which Russia has challenged the international order in recent years, “third parties” were involved in many of them: seizing Crimea, invading Eastern Ukraine, and shooting down the MH17 jet liner, as well as in many domestic assassinations. Often the trail is not that long and the “third parties” are barely even that. The two men who British police believe assassinated Alexander Litvinenko were former KGB operatives.

Don’t we murder people abroad too?

Sometimes, yes. There are examples of people have done great wrongs or present great dangers, who have put themselves beyond the reach of justice. A case in point would be the execution of Usama Bin Laden. (But the US government made no secret of its role.)

I don’t consider myself to be an expert in such cases. If Western governments set out to kill people in circumstances other than the ones I just described, my guess would be that it’s usually the wrong thing to do. And any such cases should absolutely not be used to justify the attempted murders in Salisbury. (Besides, to defend oneself against a murder charge by saying "he deserved it" or "I'm not the only one" essentially concedes the allegation.)

Most importantly, Skripal was not a fugitive from justice. He was previously tried in a Russian court for being a British spy, convicted, and imprisoned. The Russian state could have shot him at the time, and they did not; the court put him in prison. Later, they decided to pardon him and release him. They could have kept him in Russia, and they did not. They let him go abroad in exchange for some of their own spies. There is absolutely no “what about” defence for trying to kill him now – let alone his daughter, who lives in Moscow and has never been charged with anything.

Britain's responses

Should Britain respond? Yes, absolutely. The expulsion of diplomats thought to be undercover intelligence operatives is appropriate. So are measures against particular Russians now living in Britain on the basis of “unexplained wealth.”

It’s important to understand that nearly all forms of sanction bring risks of collateral damage, which we should try to limit. British and Russia have many cultural and business ties, most of them completely innocent and bringing large benefits. Most Russians living or studying in Britain are entirely innocent of connections to this or any crime. Britons living in Russia are as vulnerable to indiscriminate sanctions as Russians in Britain. Footballers and football fans are mostly innocent bystanders. Whatever are the rights and wrongs of football’s international governance, we should try not to damage these links.

We should also keep talking to the Russians, but, as the Prime Minister said yesterday, the value of high-level contacts is low when the tone of the Russian side is currently limited to sarcasm and passive aggression.

One of the most important responses should be to investigate the Skripal affair thoroughly and to publish the results, as after the assassination of Alexander Litvinenko. It was a bad mistake of the government in 2006 to try to limit the damage from the Litvinenko affair by suppressing evidence for the inquest. Lasting damage resulted; possibly, Putin or the FSB concluded that Britain was a soft target. If the individual wrong-doers in the Skripal affair cannot be brought to justice, their public exposure is still vitally important.

Beyond these things, Britain can do little alone. That’s why we have allies in the European Union and in NATO – to help defend us when we are attacked.

What will the Russians do next?

Because both sides need to maintain the appearance of injured innocence, there will be a period of tit-for-tat. These processes do not usually go to many rounds. But everything depends on intentions. If the Russian government intends to escalate the situation, and is not frightened of the consequences, there is little we can do immediately to limit the process. But it should surely give us pause for thought: why we have allowed a situation to arise in which a potential adversary feels able to act against us with impunity?

Are we risking war with the Russians? The risk of unintentional war is very low, and is nearly always lower than many people think. Many believe, wrongly, that the First World War came about through unintended escalation from trivial starting points. This is wrong: the First World War was planned in Berlin and Vienna, and went ahead in 1914 because London and Paris allowed deterrence to fail.

Today the main risk of escalation comes from the possibility that the Russian government might intend to benefit from increased international tension or from conflict. In Russia there’s a presidential campaign under way. Whatever the motivation, the only way we can protect ourselves against this is by deterrence, which requires reliable defences and a strong alliance.


November 20, 2017

Shorn of Violence and Coercion? The Soviet Model of Economic Development

Writing about web page https://www.economist.com/news/finance-and-economics/21731113-even-today-some-see-it-way-kick-start-industrialisation-what-there

One of the joys of your own blog is that there is no editor to reject your contribution. (The corresponding downside risk is that there is no one to tell you not to be so bloody stupid.)

Last week, I wrote a letter to The Economist. I responded to a column entitled "What there is to learn from the Soviet economic model: Even today, some see it as a way to kick-start industrialisation." The column correctly pointed out that the Soviet way of doing things incurred heavy human and social costs. Nonetheless I felt it missed something. I wrote and said so, but my letter did not make it into this week's issue. Exploiting the prerogative of the blogger, I publish it here:

Sir

Jawaharlal Nehru asked whether the Soviet economic system could be “shorn of violence and coercion” (What there is to learn from the Soviet economic model, Nov. 9, 2017). Your correspondent correctly answers “No,” but, like Nehru, fails to grasp the reason. Nehru tried to understand the Soviet economy as a civilian project for economic growth and development. This was his mistake. The Soviet economy’s quantitative controls, priorities, and shortages, were the features of a war economy. The Bolsheviks’ first model was the German economy of sacrifice and mass mobilization for the Great War. Lenin expected to improve on the German outcome by dispensing with private property and the rule of law. The Soviet economy’s comparative advantage lay in supplying the means of national power in the age of mass armies. This advantage was revealed not in global market shares but in the global balance of power, where the Soviet Union was much more successful than its second-rate economy would have predicted. That is why the idea of it retains appeal for Russian nationalists in times of international tension.

Yours sincerely

Mark Harrison


October 28, 2017

The Soviet Economy Collapsed After the World for Which it was Designed Disappeared

Writing about web page https://www.elindependiente.com/opinion/2017/10/28/por-que-colapso-la-economia-sovietica/

This column appeared (in Spanish) on 28 October on the website of El Independiente.

Soviet economic institutions were inspired by two western economic models of the early twentieth century. One was the German war economy of the Great War, which Lenin observed and admired for its government priorities, the control of supply chains by committees of industrialists, the rationing of commodities at fixed prices, and obligatory labour mobilization. The other was the American system of mass production of standardized products in great factories under centralized management.

Combined with an authoritarian single-party dictatorship, these two models made the Soviet economy as it emerged under Stalin and persisted until 1991. Everything was designed for mobilization, production, accumulation, and expansion. To ensure this, the state owned nearly everything and directed nearly everything from the centre, either by decree or by pressure to conform, backed up by the secret police. The citizens were motivated to comply with authority by a mixture of patriotic appeals, fear, and meagre rewards. The economy could supply basic consumer goods and services, but its special advantage lay in supplying the means of national power in the world, especially a mass army with vast quantities of standardized weapons. By the outbreak of World War II, Stalin’s Soviet Union had become one the world’s two leading producers of armaments, the other being Hitler’s Germany.

The Soviet economy was capable of growth, but it never proved capable of catching up with the innovative market economies of the time. Moreover, the growth rate of the Soviet economy steadily deteriorated through the postwar period. From the mid-1970s, the Soviet Union was falling further behind the United States in productivity and prosperity. While its economy began to stagnate, the Soviet Union faced additional challenges of the time. One challenge arose from the U.S. rearmament under Presidents Carter and Reagan. Another arose from the self-imposed burden of the Soviet Union’s entanglement in Afghanistan. In the international economy the Soviet Union was reliant on the oil market, where prices collapsed.

The Soviet leaders made repeated efforts to overcome economic constraints through reforms. The reforms sought to raise productivity by decentralizing management and improving incentives for efficient behaviour, while retaining the framework of state ownership and the party monopoly of power. All such reforms failed, as the economy reverted to its basic type. Later, the Chinese leader Deng Xiaoping would say that the last Soviet leader, Mikhail Gorbachev, was a fool for abandoning the party monopoly of power without reforming the economy. But this was unfair. Gorbachev did so only after all economic reforms had been tried, including most of the reforms that had been tried out successfully in China. Why they failed in the Soviet Union is an important story, but one for another time.

The end of the Soviet economy cannot be explained by economic factors alone. This should be clear from the example of countries like Cuba and North Korea, where ruling parties are facing vastly greater economic problems and threats than the Soviet Union ever faced, yet regimes have not collapsed. In the case of the Soviet Union, politics was decisive. The conservative generation of leaders such as Leonid Brezhnev, born in the early twentieth century, died out. A new generation took command, led by Mikhail Gorbachev. The new generation was more open-minded, and their open minds had been influenced by the ideas of the dissident movement – nationalist, liberal, or social-democratic. Gorbachev was decisively influenced by ideas about social democracy and rule by consent. He did not want to rule at any price, or to rule by fear. Once it became widely understood that resistance to power would not be punished, people stopped being afraid. The Soviet Union became ungovernable and fell apart.

Politics was decisive in the moment, but at the same time we should not ignore the deeper economic forces. The Soviet economy was designed for a world of mass production and mass armies. That is no longer the world in which we live. In the 1970s, the information revolution gave rise to flexible production and a services economy based on information sharing. In the same decade, precision guidance and miniaturized nuclear weapons put an end to the idea that the future of Europe could be decided by a great battle fought by thousands of tanks and planes and hundreds of thousands of soldiers in the central European plain. The world for which the Soviet economy had been designed was disappearing. The Soviet Union had no future. No one should want to see it return.


October 20, 2017

The Past and Future of Free Trade, or How Partisan Preferences Spread Foolishness

Writing about web page https://twitter.com/nickdearden75/status/919871698236829697

I woke up on October 16 to a learned debate on Twitter about economic history. Daniel Hannan, who is a Conservative Member of the European Parliament, had posted this:

What made us the world's richest nation? We removed trade barriers and so put money into ordinary people's pockets.

In response, Nick Dearden, who is the director of Global Justice Now, a campaigning organization, replied:

No. We plundered & pillaged. We sold people by the millions. We forced China into opium addiction. We decimated Bengal's textile industry.

(At the time of writing, both of these tweets were well liked, with Dearden well ahead: Hannan 982, Dearden 1.9K.)

Maybe you've guessed: this dispute was not really about economic history. It's about Brexit. Hannan urges Britain to go it alone as a free-wheeling, free-trading nation state, as in the past; that, he maintains, is what made us rich then, and it will work for us again. Dearden maintains that we owe Britain's wealth to the world, from which we once stole it. I'm not sure what that implies for Brexit, but for sure he doesn't seem to like free trade.

Considered as economic history, which version is more plausible? Neither account would pass even a low bar, say, that of an undergraduate multiple choice test. But, of the two, I prefer Hannan's. Here's how that works:

Why Hannan would not pass: he is wrong to imply that free trade was the key factor. Britain's relative advantages can be dated at least back to the fourteenth century, long before free trade; in fact, long before foreign trade represented a substantial share of Britain's economic activities.

Why Hannan deserves some credit: he is right to suggest that in the nineteenth century free trade further promoted British productivity and prosperity. He is also correct to remind us, as many forget, that trade is primarily about wages and prices, and that the gains from trade stem from higher productivity in the jobs we have, not from more jobs.

Why Dearden would fail -- on every count. Plunder, pillage, and the slave trade have little or nothing to do with Britain's modern competitive advantages. These advantages stemmed from factors that came into play long before the eighteenth century. Even in the eighteenth century, Britain's foreign predations were not on a sufficient scale to explain the continued growth of the economy at home, for at that time the total of foreign transactions was not large enough relative to the size of the economy, and all profits on trade did not represent a significant share of British investment.

At home, the revenues from British colonies and plantation enriched a few, but they did not generate economic growth. Britain's industrial revolution was made by mill owners and ironmasters, who were not especially enriched by their entrepreneurship because competition continually drove down their prices and profits. Those enriched by the cotton trade were the many who gained from falling textile prices and cheap imported food.

That's at home; what about the rest of the world? The cotton trade did not only enrich Britain. It also enriched others. It did not, as Dearden claims, "decimate Bengal's textile industry." That was done by Indian mill owners. In India as in England, some lost but many gained. This is shown by the fact that, throughout India's so-called deindustrialization, both production and consumption of textiles rose decade by decade.

So . . . if Hannan had the better case for Britain to have embarked on free trade in the nineteenth century, does he have the stronger case for Britain to leave the EU in the twentiy-first? Absolutely not.

The gains from free trade in the nineteenth century arose from exchanging basic staple commodities: food and raw materials, textiles, and simple machinery. These goods could be described by simple standards, and contracting for them was largely free of regulation. Trade in the twenty-first century is radically different.

Today, trade in complex machinery and electronic devices relies on common standards for quality, safety, and networking. Trade in services, where there are the greatest unrealized gains, relies even more on common regulatory standards for consumer protection and contract enforcement. These things are not provided by the WTO, or by free trade, or by free trade agreements. They are provided by international regulatory harmonization, such as by the EU's Single Market.

If you want to import, you have to export. By leaving the Single Market, we throw up a trade barrier between ourselves and our largest, most competitive market.

So, to the extent that Hannan is correct on free trade, his is a powerful argument against Brexit.

More generally, the exchange between Hannan and Dearden illustrates how the desire to defend or attack prompts the opposing sides to oversimplify history and to spread half-truths and "alternative facts." Partisanship makes idiots of us all.


October 13, 2017

Soviet and Russian Inequality: Was the Soviet System Pro–Poor?

Writing about web page http://wid.world/

In August this year Filip Novokmet, Thomas Piketty, and Gabriel Zucman circulated a new working paper, “From Soviets to Oligarchs: Inequality and Property in Russia, 1905-2016” (NPZ 2017a, b). This paper makes several advances, including a novel estimate of the evolution of Russians’ offshore wealth.

To situate the subject briefly, Cold War scholarship has left us a substantial literature on income inequality under communism. Bergson (1944), Yanowitch (1963), Wiles and Markowski (1971), Pryor (1972), Wiles (1974, 1975), Wädekin (1975), Chapman (1977), McAuley (1977), and Matthews (1978), each made valiant attempts, sometimes extending to piecemeal comparisons over countries and over time. “Considering the obscure data with which they had to work,” a survey by Schroeder (1983) remarked, “Western investigators display a large degree of agreement.” Measured by the decile ratio, the distribution of official incomes in the Soviet Union was becoming more equal over time and was substantially more equal than in the developed market economies then available as comparators. Schroeder noted, however, that Western researchers could not access data on the Soviet distribution of illegal incomes, or on privileged distribution of goods and services including accommodation and health care.

More recently, Lindert and Nafziger (2014) made an advance in another direction, examining inequality in Russia before and after the Soviet era. They concluded that pre-tax income inequality in 1997, although likely understated by official reports, was greater than in 1904.

Finally, a new paper by Allen and Khaustova (2017) examines Russian real wages in the long run. This paper does not address income inequality directly but allows inferences to be drawn from comparing real wages and productivity in industry. They find that real wages stagnated from the 1860s to 1913 (in St Petersburg, the capital, and Kursk, a provincial centre) or showed modest gains (in Moscow) but lagged everywhere behind productivity, suggesting a movement from wages to profits and income from wealth. After the troubled wartime and revolutionary period, the 1920s brought large real wage gains. These were short-lived, evaporating in the famine-led inflation of the early 1930s.

Novokmet and co-authors (NPZ) are the first to have tried to measure wealth and income inequality in Russia over the whole twentieth century. And, as many readers will be aware, their paper is part of a much larger collaborative project, the World Inequality Lab and the associated World Wealth and Income Database, one that aims to measure inequality in many countries over hundreds of years.

Here I focus on income inequality:

Income shares in Russia, 1905-2016 (selected years): bottom 50 per cent and bottom 90 per cent

Soviet and Russian income inequality

Source: Novokmet, Piketty, and Zucman (2017a,b).

According to NPZ, the share of the top 10 per cent in pre-tax income distributed to adults in Russia was 47 per cent in 1905. The share fell to 22 per cent in 1928, increased modestly to 26 per cent by 1956, and began to fall gently back again, reached a low of 21 per cent in 1980. (The Soviet-era years observed are 1928, 1956, and then roughly every second, third, or fourth year to 1988, when annual observations begin.) By 1996 the top 10-per-cent share had returned to the 1905 level and remained in that vicinity through 2016. NPZ comment: “our benchmark estimates suggest that inequality levels in Tsarist and post-Soviet Russia are roughly comparable. Very top income shares seem if anything somewhat larger in post-Soviet Russia.”

Measured by the top 10-percent income share, Russia today appears in the World Inequality Lab database in the same inequality band as the United States and China. Income inequality is reported as greater in a few countries: Turkey, India, South Africa, and Brazil. All north and west European countries that are represented in the database are more equal than Russia. But all are smaller than Russia in population, and a larger population will always tend to show greater inequality, because unequal economic outcomes are promoted by heterogeneity of all kinds, and heterogeneity is inevitably increasing in population size.

In its time the Soviet Union, in contrast, was apparently one of the most equal countries in the world. This is particularly striking, considering the large size of the Soviet population, 288 million by 1991. Other countries in the WID dataset with top 10-percent shares of 26 per cent or below at any time from 1917 to 1991 are few, and they are also much smaller in population: Australia, Denmark, Mauritius, Italy, New Zealand, Norway, Portugal, Sweden, and Taiwan. Of all these countries, only Italy’s population had reached 57 million by 1991, and Taiwan’s 20 million.

These results are broadly consistent with the earlier research described above. They confirm that income inequality in Russia after the Soviet era was comparable to before the Revolution, if not greater; that the distribution of Soviet official incomes was markedly more equal than in most market economies at the time and today, and in Russia beforehand and today; and that, within the Soviet era, inequality followed a modest Kuznets curve, rising, then falling.

Seen in this light, Soviet institutions and policies appear distinctly pro-poor. Before we take that as settled, however, there are three issues that point the other way.

First, in the Soviet era the poor might have gained relatively, but the chief factor in this was impoverishment of the rich. What the rich lost was not transferred to the poor, or was given only temporarily before the state grabbed it back, as clearly implied by Allen and Khaustova (2017). NPZ measure inequality by shares of income distributed to adults. In the Soviet era, the share of income not distributed to adults, but retained by the state, became unusually large. As a first approximation, household consumption fell from around 80 per cent of GDP in 1913 to around 50 per cent in 1940 and through the postwar period. By implication, what the rich lost was diverted into government administration and investment and defence projects; it was not passed on to the lower income strata. If there was an initial transfer to the poor, it was confined to the 1920s, and was then cancelled in the Great Breakthrough of Stalinist collectivization and industrialization.

Second, the Soviet state did not take only from the rich. It took also from the poor, including the poorest. This applied particularly in the years from 1928 to 1956, a period for which the NPZ dataset has only gaps. While I cannot find full explanation on this point, the NPZ dataset (like most Cold-War scholarship) seems to rely on reports of the distribution of official wage earnings to capture Soviet-era inequality. Wage earnings accounted for less than one third of Soviet household incomes in 1928, just over 60 per cent in 1937, and nearly 70 per cent in 1956 (Kashin and Mikov 2004: 17, 23, 34). The largest category of households excluded from reports of wage earnings were collective farmers – the great majority of Soviet farm workers – who received an uncertain dividend, not a wage. If that is the case here, then the rural poor are left out of account. (Forced labourers are also left out. There were millions of these from the 1930s to the 1950s. But they are a small omission compared with many tens of millions of collective farmers.)

Narrative accounts of rural food shortages and periodic famines indicate that rural poverty contributed substantially to Soviet-era inequality before the 1950s (e.g. Davies and Wheatcroft 2004). After that time, the compensation of collective farmers moved gradually, but never completely, towards public-sector standards.

Finally, as NPZ acknowledge, under Soviet arrangements, persistent shortages and privileged distribution decoupled consumption inequality from income inequality. In the Soviet Union everyone had an income, but not everyone could spend it on the same terms. A privileged class of insiders – the party elite and the employees of key production and service establishments – who had access to relatively high-quality goods and services at prices fixed below the market-clearing level without waiting. Others had limited access to staple goods and services, for which they either waited in line or paid a higher, sometimes illegal price. As long as the poor had money they could not spend, or faced higher prices to spend it, it is possible and even likely that consumption was distributed more unequally than income. This contrasts with the pattern that has been found to prevail in market economies, where consumption inequality is generally less than income inequality. But comprehensive data on Soviet consumption inequality would seem far more difficult to come by than income data, so this may well remain a conjecture.

Consumption inequality was important not only for ex post evaluation of economic welfare under Soviet arrangements. It was of central importance to the political economy of the time. During the 1930s, as Paul Gregory (2004: 76-109) has noted, Stalin received regular reports of discontent and falling effort among the workers in the provinces and intervened from time to time to improve their condition. When he did so, he did not order their wages to be raised because, in a supply-constrained economy, this would only have lengthened local queues. Rather, he ordered consumer goods in short supply to be redirected to the towns and factories where dissatisfaction was rising, so that the workers could more easily spend their wages.

The existence of unofficial incomes in the Soviet era only adds complexity to the problem. We guess that unofficial incomes were substantial but of time-varying size. Anecdotes on who received them are plentiful. The Soviet central bank compiled annual estimates of their aggregate size (Kashin and Mikov 2004), but we continue to lack (and may never find) data on their distribution. Thus, it is impossible to say whether their net effect was to increase or reduce the extent of inequality of different kinds.

To summarize, the extent to which Soviet institutions favoured the poorest in society is easily overstated. The impact of the Bolshevik Revolution was to flatten the distribution of wages. On that official measure income inequality fell sharply. But non-wage earnings were likely distributed more unequally than wages. Unofficial incomes also mattered; how they mattered is unclear. Consumption inequality mattered too, and arguably mattered more than income inequality. Most likely, consumption inequality did not fall to the same extent. Whereas consumption inequality in market economies is relatively stable, it is possible that Soviet consumption inequality was volatile, spiking in particular years of crisis.

Any judgement on new work must be preliminary, but my thoughts so far are as follows. NPZ (2017) is a substantial contribution. It is not the first word on the subject, and it will not be the last word either. It turns a new page and sets a new challenge.

References

  • Allen, Robert C., and Ekaterina Khaustova. 2017. “Russian Real Wages Before and After 1917 in Global Perspective.” University of Oxford: Discussion Papers in Economic and Social History no. 158 at https://ideas.repec.org/p/oxf/wpaper/158.html.
  • Bergson, Abram. 1944. The Structure of Soviet Wages. Cambridge, MA: Harvard University Press.
  • Chapman, Janet G. 1977. “Soviet Wages Under Socialism.” In The Socialist Price Mechanism. Edited by Alan Abouchar. Durham, North Carolina : Duke University Press.
  • Davies, R. W., and S. G. Wheatcroft. 2004. The Industrialisation of Soviet Russia, vol. 5. The Years of Hunger: Soviet Agriculture, 1931-1933. Basingstoke: Palgrave.
  • Gregory, Paul. R. 2004. The Political Economy of Stalinism. Cambridge: Cambridge University Press.
  • Kashin, Yu. I, and V. V. Mikov, eds. 2006. Po stranitsam arkhivnykh fondov Tsentral’nogo Banka Rossiiskoi Federatsii, vol. 1. Denezhnye dokhody i raskhody naseleniya 1924-1990 gg. Moscow: Tsentral’nyi Bank Rossiiskoi Federatsii.
  • Lindert, Peter H., and Steven Nafziger. 2014. “Russian Inequality on the Eve of Revolution.” Journal of Economic History 74(3): 767-798 at https://ideas.repec.org/a/cup/jechis/v74y2014i03p767-798_00.html.
  • Matthews, Mervyn. 1978. Privilege in the Soviet Union. London: George Allen & Unwin.
  • McAuley, Alastair. 1977. “The Distribution of Earnings and Incomes in the Soviet Union.” Soviet Studies 29(2): 214-237.
  • Novokmet, Filip, Thomas Piketty, and Gabriel Zucman (NPZ). 2017a. “From Soviets to Oligarchs: Inequality and Property in Russia, 1905-2016.” WID.world working paper no. 2017/09 at http://wid.world/.
  • Novokmet, Filip, Thomas Piketty, and Gabriel Zucman (NPZ). 2017b. Appendix to “From Soviets to Oligarchs: Inequality and Property in Russia, 1905-2016.” WID.world working paper no. 2017/10 at http://wid.world/.
  • Pryor, Frederic. 1972. Economic System and the Size Distribution of Income and Wealth. Bloomington, IN: International Development Research Center.
  • Schroeder, Gertrude. 1983. “Consumption.” In The Soviet Economy: Toward the Year 2000. Edited by Abram Bergson and Herbert S. Levine. Winchester, MA: Allen & Unwin.
  • Wädekin, Karl-Eugen. 1975. “Income Distribution in Soviet Agriculture.” Soviet Studies 28(1): 3-26.
  • Wiles, Peter, and Markowski, Stefan. 1971. “Income Distribution under Communism and Capitalism”, Soviet Studies 22(3): 343-369; 22(4): 487-511.
  • Wiles, Peter. 1974. Distribution of Income: East and West. Amsterdam: North Holland.
  • Wiles, Peter. 1975. “Recent Data on Soviet Income Distribution.” In Economic Aspects of Life in the USSR. Brussels: NATO, Economic Directorate.
  • Yanowitch, Murray. 1963. “The Soviet Income Revolution.” Slavic Review 22(4): 683-697.

July 25, 2017

Alternative Facts When the Truth Could Kill

Writing about web page http://warwick.ac.uk/cage/news/20-07-17-advantage_magazine/

CAGE (Warwick's ESRC Centre for Competitive Advantage in the Global Economy) has just published the summer issue of its excellent Advantage Magazine. Claire Crawford asks: "Does offering more free childcare help parents work more?" Luigi Pascale writes about "Globalisation and economic development: A lesson from history." Nick Crafts ponders: "Building a new industrial strategy ... on shaky foundations?" Sascha O. Becker, Thiemo Fetzer and Dennis Novy discuss "Who voted for Brexit?" And Daniel Sgroi explains new work on "Measuring historical happiness using millions of digitised books." The last word, entitled "Parting Shot," is mine, and I reproduce it below.

Scholars involved in evidence-based policy research are sure to be concerned when “alternative facts” and “fake news” take over the agenda. By that, I mean more than just selection of the facts in a biased way. This is commonplace, and the expert’s task has always been to sift the data to correct for such biases. A more difficult problem is how to respond to alternative facts that are fabricated, although outrageously different from the truth, because that’s what their authors think ought to be true.

Alternative facts of the made-up kind are not new. As the economist Ed Glaeser once wrote, fabricated stories have typically spread through society in conditions of depression or defeat, when there is a popular thirst for explanation. Why has this happened and who is to blame? Foreigners, minority groups, and corporate interests can quickly become the target of “fake news” that points an accusing finger at the “enemies of the people.”

Alternative facts can emerge in any society, including liberal democracies. But the most diligent promoters of alternative facts are dictators, who are armed with the power to suppress the truth. Authoritarian rulers do this both to build support, and to expose covert resistance. Communist regimes, for example, required everyone, including experts, to salute fictitious achievements. To show scepticism or just indifference was not an option.

Exactly 80 years ago, in the spring and summer of 1937, Soviet statisticians were being arrested and imprisoned or shot because the facts they produced were in conflict with alternative facts that their rulers had authorized.

At the end of 1926, the Soviet population had been enumerated at 147 million. In the mid-1930s, to demonstrate the happy progress of Soviet society, Stalin announced an alternative fact: the population was growing every year by three million. On that basis, by the beginning of 1937, the population should have gained around 30 million people.

The 1937 census showed only half the expected increase: 15 million were missing. Why? The regime had to choose among explanations. In secret, some experts reported that Stalin’s alternative fact was wrong. There were more deaths than Stalin projected, because millions had starved, or were shot or died in prison, or fled the country. There were also fewer births, millions fewer, as a result.

More loyal officials offered another explanation: the census did not confirm Stalin’s alternative fact because the census office was captured by traitors, who aimed to discredit the party. Stalin waited a few weeks, then decided. Those who went with the facts disappeared, along with the census. Those who went with the alternative facts were promoted, and their explanation was released to the public.

This story has two messages. On the side of pessimism, it shows that the logic of alternative facts can be self-sustaining. When experts refute the alternative facts, the believers are likely to blame them as enemies, whose aim is to confuse and undermine society.

I am also an optimist. In the age of social media no information can be suppressed for decades. Yes, tyrants and despots can exploit social media to spread lies and to identify critics. Nonetheless, more scope exists today for truth-tellers in Russia and China, let alone in the West, than there ever was under Stalin or Hitler.


June 01, 2017

McCarthyism — Then and Now

Writing about web page https://www.forbes.com/sites/paulroderickgregory/2017/05/23/there-remains-no-evidence-of-trump-russia-collusion/

On Forbes on 23 May, my co-author Paul Gregory worries about America's risk of a new McCarthyism. He warns:

Joseph Welch, the lawyer for the army in the McCarthy-Army hearings brought the McCarthy Era to an end by asking McCarthy, who had gratuitously ruined the reputation of a young colleague: “Have you no sense of decency, sir, at long last?” We are beginning to see the use of these guilt-by-association practices.

In picking up this theme, Paul echoed an exchange between US President Trump and Russian Foreign Minister Sergei Lavrov earlier in the spring. As the controversy over his campaign links with Russia intensified, on 3 March 2017 (at 2:38AM) Trump tweeted that leaks of information were turning into:

a total "witch hunt"!

Lavrov adopted and extended Trump's metaphor later the same day:

I can refer to a quote spread in the media today: all of this looks very much like a witch hunt or the days of McCarthyism, which we long thought have passed in the US, a civilized country.

And the following day, Trump returned the compliment:

Terrible! Just found out that Obama had my "wires tapped" in Trump Tower just before the victory. Nothing found. This is McCarthyism!

What is McCarthyism? For readers who are not sure what that's all about, Senator Joseph McCarthy was Republican Senator from Wisconsin from 1944 to his death in 1957. He played the leading role in a postwar search for undercover communists and Soviet agents in US public life. With or without reasonable cause, this search placed tens of thousands of people under suspicion, many of whom lost their jobs and careers, and some of whom were eventually imprisoned on criminal charges.

Wikipedia defines McCarthyism as:

the practice of making accusations of subversion or treason without proper regard for evidence.

So, that's McCarthyism. Now for the parallel. Those who raise fears of a new McCarthyism suggest that we should compare today's beleaguered Trump campaign and White House officials to McCarthy's victims after the war. How well does that hold up? The comparison is reasonable up to a point. The chief similarity is the fevered atmosphere of suspicion and finger-pointing, inflamed by a widespread belief that America's public life has been penetrated by hidden enemies, who now lurk just beneath the surface of things.

On Vox on 18 May, Zack Beauchamp noted the spread of fake news about the Trump campaign and presidency, the Congress, and Russia connections:

President Donald Trump is about to resign as a result of the Russia scandal. Bernie Sanders and Sean Hannity are Russian agents. The Russians have paid off House Oversight Chair Jason Chaffetz to the tune of $10 million, using Trump as a go-between. Paul Ryan is a traitor for refusing to investigate Trump’s Russia ties. Libertarian heroine Ayn Rand was a secret Russian agent charged with discrediting the American conservative movement.

These are all claims you can find made on a new and growing sector of the internet that functions as a fake news bubble for liberals.

That same evening, my own Facebook feed provided a near-perfect illustration. The evening's news was that investigations into the Trump campaign's Russia links were homing in on a "current White House official" as a "significant person of interest." But who would that be? Nobody knew. I came across some comments by people, not my friends, or even friends of friends, just ordinary, good-hearted, liberal-minded Americans, whom I'll call A, B, and C:

A. Bannon I hope

B. Nope. He's not important. It's Kushner.

A. I wish it could be Pence just to get him out of the picture. So that makes sense why he got so close to top.

C. Please oh please oh please be Jared.

What struck me was not just how interested we have become in the hidden workings of the White House. It was more than that; it was the hunger and thirst for one or another hate figure to be found out for what, in our imagination, they really are -- or what we need them to turn out to be, if the hatred is to be justified.

Common to the new and old McCarthyisms is the burning desire of many to see proven what they feel they already know, in the absence of any hard evidence, to be true. We've made up our minds about Trump and his circle, and what sort of people they are. All we need is the facts that confirm it.

That is not all, however.

There is a deeper point that is buried in the history of the old McCarthyism, a problem that those who warn of the new McCarthyism appear to forget. They hold, and I agree, 100 per cent, that McCarthy and his supporters did despicable things. The McCarthyites ruined the lives of many people who had done nothing wrong. They injected a poison into American political life that persists to the present day.

But there is more. The suspicions that fuelled McCarthyism were not unfounded in fact. McCarthyism was not about nothing. And McCarthyism, in its time, was not technically a witch hunt, although I understand most of its victims felt it like that. For in fact witches do not exist, whereas the traitors that McCarthy hunted in his blind, destructive way, really existed.

Since the end of the Cold War, historians have been able to reconstruct the deep history of which McCarthyism was an evil outgrowth. During the 1930s and 1940s, particularly during World War II when the Soviet Union and the United States were allied, and so before the Cold War began, the American government was penetrated by hundreds of Soviet spies and undercover agents. It was easy for this to come about because many educated Americans had a spark of sympathy for communism, which made them susceptible to Stalin's fake news about the Soviet Union, and also because America at that time lacked the traditions and institutions of counter-intelligence.

By the late 1940s, by means of partial decryption of Soviet diplomatic cables, the FBI knew of the existence of up to a couple of hundred Soviet agents in and around a variety of government departments and projects, including the Manhattan Project. But the FBI mostly did not know who these agents were. This was because the agents' identities were protected by cover names, which the FBI could not crack except by good luck, which did come around occasionally. Meanwhile, the FBI could only protect its limited capacity to decode the Soviet signals by hiding the authoritative source of its suspicions.

Beneath the surface of the McCarthyite search for traitors, in other words, lay two things. First was a pattern of covert collusion by American citizens with the Soviet Union, a country that was operating an intelligence assault on its wartime ally consistent with a state of undeclared war between them. Second was an investigation into them that could not be completed and would remain unfinished and undisclosed for half a century. It was in this context that public suspicion and the desire to expose traitors took hold, with the destructive results that we know.

There are three clear lessons for today.

First, justice is not served when guilt is determined in advance of the facts, or when evidence is sought only to confirm prior beliefs. That is why we should worry about a new McCarthyism.

Second, calling it McCarthyism doesn't mean there is nothing there. The allegations of underhand dealing between the Trump campaign and Russia need to be substantiated or cleared out of the way, based on evidence.

Third, nothing will fuel popular suspicion more than an unfinished investigation. The investigation of Russia's role in the 2016 US presidential election needs to be seen through to the end.


May 30, 2017

Dear Jim: A Letter to my Labour Candidate

Dear Mr Cunningham

You wrote to me on 25 April: “I wanted to let you know that at the General Election, to be held on June 8th, I will be standing again. I have proudly represented Coventry South for 25 years, and I believe that I can continue standing up for Coventry.”

You asked for my support. I was a Labour supporter and voter in every General Election from 1970 to 2005. I voted for you many times. Led by Gordon Brown, Labour lost my support in 2010. I see no chance of Jeremy Corbyn winning it back.

Every major party in this election has good and bad in its manifesto, and that includes the Labour Party. But Labour’s present leaders are tarnished by their past hostility to our armed forces and security services, our nuclear deterrent, and our NATO membership. Whatever they say now is compromised by their sympathy, sometimes open and sometimes poorly concealed, for authoritarian regimes, anti-semitic causes, and terrorist factions around the world.

Jeremy Corbyn has justifed his past contacts with terrorists by the necessity to talk to "people you profoundly disagree with." But there is reason to think that, at the time, he saw the terrorists he talked to not as people he disagreed with but as friends. He explains the terrorists' actions, in part, as responses to our own past foreign policies. But this carries little weight when the overwhelming majority of terrorist attacks worldwide have no such explanation.

As well as having repellent views on these matters, Corbyn and Abbot stand out as incompetent. But not all your leaders are incompetent. McDonnell, Milne, and Murray are evidently capable people. That makes them worse, not better. Their competence is sinister. I fear for our future if such people ever got their hands on the machinery of the British state. That outweighs any other reason I might have to vote for you.

Your letter states: “The country needs change.” I agree. But, just when change is needed, the Labour Party has managed to offer an alternative that is also unacceptable. The Labour Party needs change. If you would acknowledge this, you would put country before party.

Yours sincerely

Mark Harrison


I am a professor in the Department of Economics at the University of Warwick. I am also a research associate of Warwick’s Centre on Competitive Advantage in the Global Economy, and of the Centre for Russian, European, and Eurasian Studies at the University of Birmingham. My research is on Russian and international economic history; I am interested in economic aspects of bureaucracy, dictatorship, defence, and warfare. My most recent book is One Day We Will Live Without Fear: Everyday Lives Under the Soviet Police State (Hoover Institution Press, 2016).



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