The political intergenerational welfare state

Using a three-period overlapping generations economy framework, we characterize an intergenerational welfare state with endogenous education and pension under voting. We show that although politically establishing Pay-As-You-Go (PAYG) social security in isolation in a dynamically efficient economy will always reduce the capital investment and therefore the social welfare as expected, in contrast politically implementing education-pension policy package instead can improve both human and physical capital accumulation and social welfare over laissez faire. However for this the political influence of the old has to be small thus limiting the size of the PAYG social security program.     

Labor supply and the optimality of Social Security

Traditional economic theory predicts that an unfunded public pension system can be justified on the basis of its ability to provide intergenerational transfers, and also for its ability to provide partial insurance against mortality and labor income risks. In this paper, I demonstrate that the quantitative importance of these traditional roles depends on how the pension system distorts households' labor supply decisions. Using a general-equilibrium life-cycle consumption model calibrated to the U.S. economy, I show that these distortions can be large enough to erase much of the traditional welfare gains from Social Security. I also find that this fact is robust within the range of labor supply elasticities usually encountered in the macroeconomic literature.     

World economy

Although recent developments suggest that the risks of an escalation in US-China trade tensions have eased, we doubt this will deliver a significant boost to the global economy. We still expect world GDP growth of just 2.5% this year, the weakest since the global financial crisis, after an estimated 2.6% in 2019. But over the past three months, the risks around the forecast now seem less skewed to the downside.     

World economy

Although uncertainties have clearly increased this year and pose downside risks to growth, the latest batch of timely activity indicators suggests that in the shorter term the global economy is resilient to these worries. Given this, we see global GDP growing by 3.1% this year and 2.9% in 2019, just 0.1pp lower than our forecast three months ago and similar to last year's 3% increase.     

World Economic Prospects Monthly

Overview: World growth still seen at just 2.5% in 2020

• ▀ Although recent developments suggest that the risks of an escalation in US-China trade tensions have eased, we doubt this will deliver a significant boost to the global economy. We still expect world GDP growth of just 2.5% this year, the weakest since the global financial crisis, after an estimated 2.6% in 2019. But the risks around the forecast now seem less skewed to the downside.
• ▀ While our view remains that global GDP growth is likely to have softened further around the turn of the year, the decline remains gradual. And latest survey-based measures of activity and sentiment show tentative signs that prospects are beginning to improve, consistent with our long-standing view that the low point for global growth will be in Q1 2020.
• ▀ Just as importantly, the likelihood of the US and China formally signing off a phase one trade deal in mid-January has reduced the chances of a further flare-up in trade tensions between the two economies. However, this has to some degree been offset by the troubling events recently unfolding between the US and Iran.
• ▀ We remain sceptical that the global economy is set for a major growth boost. Any healing in US-China relations may quickly be unwound and a full reversal of the tariffs already implemented remains a distant prospect. Furthermore, some of the associated growth boost is likely to be offset by less policy support. As a result, we have raised our 2020 GDP growth by just 0.1pp in the US but by a more significant 0.3pp in China.
• ▀ Meanwhile, although the ongoing and broad-based monetary policy loosening in both AEs and EMs should start to feed through to growth this year, we doubt this will be a game-changer. Not only is policy loosening at a global level set to be fairly muted, limited spare capacity, the rising stock of global debt and elevated asset prices are likely to reduce the positive impulse from policymakers' actions.

     

Technologies in transition,policies in transition: foresight in the risk society

The emergence of formal Foresight programmes in science policy across Europe is examined in terms of government's response to the changes in, and especially the uncertainties of, contemporary innovation. The paper explores this through deploying Beck's notion of the “risk society”, asking how far Foresight can be construed as the management of new technologies by the transition towards the “negotiation state”. It shows how, through a discussion of the social management of new health technologies, a tension arises between the priorities and regimes of the new “negotiation” and those of the former “provident” (or welfare) state. The emergence of new technologies will be shaped by the institutional assumptions and processes operating within the different policy regimes.     

Intergenerational justice when future worlds are uncertain

Let there be a positive (exogenous) probability that, at each date, the human species will disappear. We postulate an Ethical Observer (EO) who maximizes intertemporal welfare under this uncertainty, with expected-utility preferences. Various social welfare criteria entail alternative von Neumann Morgenstern utility functions for the EO: utilitarian, Rawlsian, and an extension of the latter that corrects for the size of population. Our analysis covers, first, a cake-eating economy (without production), where the utilitarian and Rawlsian recommend the same allocation. Second, a productive economy with education and capital, where it turns out that the recommendations of the two EOs are in general different. But when the utilitarian program diverges, then we prove it is optimal for the extended Rawlsian to ignore the uncertainty concerning the possible disappearance of the human species in the future. We conclude by discussing the implications for intergenerational welfare maximization in the presence of global warming.     

Expansionary effects of the welfare state in a small open economy

We examine the relationship between welfare state policies and economic performance in a small open economy with (i) free trade in final goods and international capital mobility, and (ii) aggregate increasing returns to scale. Contrary to the conventional wisdom, we find that a retrenchment of welfare programmes is not an inevitable consequence of economic integration. Instead, by improving the exploitation of aggregate scale economies, social expenditure policies and international openness complement each other in facilitating an improvement in economic performance that can sustain a more generous welfare protection.     

Citizenship and the right to the global city: reimagining the capitalist world order

This article joins many contemporary activists and scholars in criticizing and seeking alternatives to the ongoing neoliberalization of the global political economy. It sets out two main arguments: (1) in order to resist the growing control of capital over the global political economy, one important project is to develop new notions of citizenship that expand the decision‐making control of citizens; and (2) Henri Lefebvre's concept of ‘the right to the city’ is one particularly fertile set of principles on which to base such alternative citizenships because it resists and rethinks both traditional citizenship forms and capitalist social relations. The first part of the article outlines the context in which Lefebvre's ideas might be pursued by examining the contemporary destabilization of traditional citizenship and its relationship to global political and economic restructuring. The second part of the article develops more specifically the potential of Lefebvrian citizenship by constructing a theoretical sketch of one possible citizenship based on Lefebvre's idea: what I call the right to the global city. The article finishes by suggesting that the right to the city can be extended beyond the urban context. It points toward a new set of more democratic political relationships in which the power of inhabitants to shape the global political economy displaces the power of capital and the nation‐state. Cet article fait écho à nombre de militants et d'intellectuels contemporains critiquant la néolibéralisation actuelle de l'économie politique mondiale, et y cherchant des alternatives. Il expose deux arguments principaux: d'abord, pour résister au contrô le croissant du capital sur l'économie politique mondiale, un grand projet doit définir de nouvelles notions de citoyenneté qui permettent aux citoyens de mieux maîtriser les décisions; ensuite, le concept de ‘droit à la ville’ d'Henri Lefebvre est un ensemble particulièrement productif de principes utilisables pour asseoir ces citoyennetés alternatives, car il repousse et repense à la fois les formes de citoyenneté traditionnelles et les relations sociales capitalistes. La première partie de l'article délimite le cadre dans lequel les concepts de Lefebvre pourraient s'appliquer, en examinant la déstabilisation contemporaine de la citoyenneté classique et son lien avec la restructuration politico‐économique mondiale. La seconde partie développe le potentiel de la citoyenneté selon Lefebvre en ébauchant une possible citoyenneté théorique basée sur son idée: ce que j'appelle le droit à la ville mondiale. L'article se termine en suggérant que le droit à la ville peut s'étendre au‐delà du contexte urbain. Il vise un nouvel ensemble de relations politiques plus démocratiques où le pouvoir des habitants pour façonner l'économie politique mondiale supplante celui du capital et de l'Étatnation.     

Whither welfare?

Book reviewed in this article: Ginsburg, N. 1979: Class, capital and social policy. Gough, I. 1979: The political economy of the welfare state.     

Energy balance climate models and general equilibrium optimal mitigation policies

In a general equilibrium model of the world economy, we develop a two-dimensional energy balance climate model featuring heat diffusion and anthropogenic forcing driven by global fossil fuel use across the sphere of the Earth. This introduces an endogenous location dependent temperature function, driving spatial characteristics, in terms of location dependent damages resulting from local temperature anomalies into the standard climate-economy framework. We solve the social planner's problem and characterize the competitive equilibrium for two polar cases differentiated by the degree of market integration. We define optimal taxes on fossil fuel use and how they may implement the planning solution. Our results suggest that if the implementation of international transfers across latitudes is not possible then optimal taxes are in general spatially non-homogeneous and may be lower at poorer latitudes. The degree of spatial differentiation of optimal taxes depends on heat transportation. By employing the properties of the spatial model, we show by numerical simulations how the impact of thermal transport across latitudes on welfare can be studied.     

CONTRIBUTIONS OF THE GATT/WTO TO GLOBAL ECONOMIC WELFARE: EMPIRICAL EVIDENCE

This paper surveys estimates of the value of the GATT/WTO's contributions to global welfare through providing a forum for negotiating reductions in policy‐induced distortions to trade flows, including through the process of accession by new members. After reviewing measures of the price‐distorting effects of trade‐related policies, it assesses estimates from global simulation models of the welfare effects of trade liberalizations prior to the WTO's Doha round, including the net benefits and transfers associated with implementing the Uruguay Round agreement on trade‐related intellectual property rights, and then reviews estimates of the potential welfare effects of a Doha round agreement to cut tariffs and subsidies. Econometric estimates of past trade and related effects of the GATT/WTO are then examined, before turning to estimates of the benefits of WTO accession and of potential benefits from WTO‐sponsored trade facilitation. The paper concludes that while it remains difficult to attribute reforms directly to the GATT/WTO, the overall body of evidence presented supports the economic profession's consensus that this institution has contributed substantially to global economic welfare.     

Egalitarianism under population change: Age structure does matter

We study the compatibility of the optimal population size concepts produced by different social welfare functions and egalitarianism meant as “equal consumption for all individuals of all generations”. Social welfare functions are parameterized by an altruism parameter generating the Benthamite and Millian criteria as polar cases. The economy considered is in continuous time and is populated by homogeneous cohorts with a given life span. Production functions are linear in labor, (costly) procreation is the unique way to transfer resources forward in time. First, we show that egalitarianism is optimal whatever the degree of altruism in “perpetual youth” model, that is when lifetime span is finite but age structure does not matter: in this case egalitarianism does not discriminate between the social welfare functions considered. Then we show that, when life span is finite but age structure matters, egalitarianism does not arise systematically as an optimal outcome. In particular, in a growing economy, that is when population growth is optimal in the long-run, this egalitarian rule can only hold when the welfare function is Benthamite. When altruism is impure, egalitarianism is impossible in the context of a growing economy. Either in the Benthamite or impure altruism cases, procreation is never optimal for small enough life spans, leading to finite time extinction and maximal consumption for all existing individuals.     

Engineering the Financialization of Urban Entrpreneurialism: The JESSICA Urban Development Initiative in the European Union

Urban entrepreneurialism and neoliberal urban governance are assuming new forms under finance‐dominated accumulation. We examine and contribute to theorizing the mechanisms through which urban governance is financialized, taking as a case study JESSICA, one of the European Union's initiatives to implement an ‘urban sensitive’ policy for sustainable and integrated development. Like other initiatives promoting financialization, JESSICA deploys the logic of finance to select and fund urban social initiatives and development projects on the basis of their potential return on investment (ROI). Understanding this process requires placing questions of political economy—how urban governance is shaped by the broader political‐economic context—with questions of governmentality—how stakeholders are enrolled in and come to take for granted new governance initiatives. Following the multi‐scalar institutional infrastructure is crucial to understanding how this works. Taking a relational multi‐scalar approach, we trace how changes at the supranational scale filter down to shape urban policy selection and performance in Sofia, Bulgaria, where we document how ROI calculations conflict with social welfare priorities. Contrasts between the trajectory of financialization of urban governance in the European Union and the United States demonstrate how this is geographically variegated, shaped by the broader context/conjuncture within which such financialization is embedded.     

The Diversity and Causality of Welfare State Reforms Explored with Fuzzy-Sets

The introduction of fuzzy-sets into social science has potentially improved our ability to study diversity by means of the so-called partial memberships. As a consequence, social phenomena can be studied empirically as a matter of degree and not longer as fixed types. A fuzzy-set is a set with elements whose membership grades can have any real value between 0 and 1. In order to illustrate the capacities of the fuzzy set logic and also to make the discussion less abstract, it will be applied to the study of welfare state reforms. The ‘grading capacity’ of fuzzy-sets makes it possible to study welfare states as partial members of different welfare state regimes at the same time. This approach reveals the diversity of welfare reforms better than traditional ways which are often inclined to picture a case as representative of one particular type which is a too crude classification. Fuzzy-sets are designed to capture the diversity in a way that leaves more room to map individual cases without falling into the trap of idiosyncrasy. An equally important ability of fuzzy-sets is to analyse causal relationships in a small-n design. The fuzzy-set logic can be used to determine necessary and sufficient conditions for an outcome. This takes the form of expressions which reveal multiple-conjunctural causation patterns. In this paper the conditions for welfare cutbacks and the effects on socio-economic performance will be examined.     

Measuring Productivity from Vertically Integrated Sectors

There are many ways to measure productivity. The choice will depend on the suitability of each index to the main purpose the researcher has in mind. Whenever we are interested in 'competitiveness', the proper measure will be the inverse of the total labour embodied in one unit of final product; or, what amounts to the same, the labour employed in the vertically integrated sector corresponding to each final good. A weighted mean of these yields an index of aggregate productivity suitable for measuring social welfare. Another index of aggregate productivity (this one related to the profit rate and potential growth) coincides with the inverse of the maximum eigenvalue of the 'socio-technical matrix'. These indices are computed for the Spanish economy and compared with more conventional ones.     

中国单位制度社会功能的变迁

单位制度在中国解放后建立,实现了较强的社会功能,它不仅成为国家进行社会调控和整合的工具,还有效缓解了建国初期城市就业压力,提供了社会福利保障,并塑造了计划体制下中国城市的基本结构特征.随着市场经济改革的深入,传统单位制度发生了深刻的变化,单位制度的许多社会功能也逐渐被剥离或弱化.分析了传统单位制度的社会功能,以及在制度改革后的社会转型期这些社会功能是如何由新的制度来完成的.从这些制度改革存在的问题中可看出,单位制度的影响仍然存在,改革应该借鉴传统的单位制度,寻找新的途径来完成对中国城市社会的管理.     

Privatization,Financialization and State Restructuring in Eastern Germany: The case of Am südpark

Using a mix of survey data, results from a study on local planning politics and fieldwork, this article discusses the interplay of planning and welfare policies with global financial markets in the ‘making’ of social segregation in Halle‐Neustadt, a borough in the German city of Halle (Saale). Here, different developments come together. First, Halle‐Neustadt has experienced two waves of privatization, leading to a complete change of ownership structures, marked by the rise of financial investors. Second, welfare cuts have put increasing pressure on welfare recipients to live in the cheapest housing available. This has led to the emergence of a ‘Hartz IV business model’ based on low, but state‐subsidized, rents. Third, new planning policies have led to a massive drop in house prices, thus facilitating the use of ‘leverage’ strategies for financial investors. We expand on an already developed debate, providing new insights about relations between planning, state restructuring and financialization in a German context. We demonstrate that a broad array of changes in national regulatory settings, policy change in different sectors and local particularities can all be crucial in enabling financialization. We conclude that research should place greater emphasis on the state in providing explanations and take differences in context more seriously.     

Dutch Courage the Morning After

For years the Netherlands has been lauded as the examplar of the compassionate welfare state. But now government spending is being reined back in a desperate attempt to stop the economy from collapsing under the weight of fiscal incontinence, initially disguised by North Sea gas revenue. Martin Wassell shows how the Dutch government, through necessity, may be setting the lead in rolling back the state.     

World Economic Prospects Monthly

Overview: World GDP now seen falling 2.8% in 2020

• ▀ With much of the global economy now in some form of lockdown due to the coronavirus pandemic, we expect world GDP to contract by about 7% in H1 2020. Activity is expected to rebound sharply in H2, but even so the severity of the shock is likely to lead to a permanent GDP loss for the global economy.
• ▀ While Chinese activity picked up in late-Q1 as lockdown restrictions were unwound, we expect Q1 GDP to have fallen 12% q/q before rebounding sharply in Q2. But this Q2 boost looks set to be swamped by the collapse in activity caused by the rest of the world going into lockdown.
• ▀ Although shutdown restrictions elsewhere are less severe than those imposed in China, business survey and labour market data still point to sharp falls in activity in most countries in Q2. Quarterly GDP declines of 8% or more in the US and eurozone seem likely. Overall, world GDP could fall by about 7% in H1, roughly double the size of the contraction during start of the global financial crisis in 2009.
• ▀ In those economies subject to some form of lockdown, we expect restrictions to begin to be lifted during Q2. As a result, growth should resume in Q3 as sectors that have been forced to shut down see some pick-up. But despite this rebound, world GDP is now seen shrinking 2.8% in 2020 overall — in 2009, the global GDP fall was 1.1%.
• ▀ The H2 pick-up, followed by a return to more normal conditions next year, will result in world GDP growth rising to almost 6% in 2021, helped also by the recent collapse in oil prices to about $30pb. But the scale of the disruption means that we expect a permanent loss of output from the shock. We expect global GDP in the medium term to be some 1.5% below the level we had anticipated before the coronavirus outbreak.
• ▀ The risks around this forecast are large and broadly balanced. But were stringent lockdowns or widespread disruption, perhaps due to renewed outbreaks of the virus, to extend into Q3, global GDP could fall by as much as 8% this year.