Rationale Issue 2 15-16 by Rationale Magazine

LSESU ECONOMICS SOCIETY

ISSUE 2 15-16

RATIONALE

Fine tuning the industrial machine Setting the stage for economic activity

R AT I O N A L E 2 0 1 5 - 1 6

PAG E 2

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Contents 5

Editorial: A Complex Machine

Industrial Policy and Development

Getting Industrial Policy Right in Developing Countries: The need for comprehensive industrial policy frameworks by Konstantin Born

Infant Industry Protection by Kavya Saxena

The East Asian Miracle?: How countries struggling with the middle income trap should proceed with industrial policy by Pujan Modi

Incorporating Grassroots Action: A new approach to rural development in India by Robin Park

14 Technology 15

Finding Balance: Innovating antitrust policy in technology by Nadine Nikolova

An Urgent Challenge in Britain: Making sure that the technologies of tomorrow benefit us all by Louis Ariss

Making Sense of Nanotechnology: Using sensible policy to unleash the potential by Lukas Raynaud

New Perspectives

In Conversation with Professor Alessandro Gavazza by Pujan Modi & Travis James

Learning to Let Go: Beijing must loosen its reins in order to reap the rewards of privatesector provision of infrastructure by Stephen Chandler

Reducing Automobile Congestion: Guiding transportation policy in Los Angeles by Vaishali Mullapudi

Good Fences Make Poor Neighbours: Can the international tax system be saved? by Benjamin Aw

Sectoral Policies

Greetings Earthlings!: Creating sensible antitrust policy for internet search by Jaume Vives

Seven Years of Change: An economic analysis of US President Obamaâ&#x20AC;&#x2122;s sustainability initiatives by Chris Curfman

So Far So Good: Review of the progress of the German energy revolution by Martin Kabrt

The UK Steel Industry: An appropriate industrial policy response by Edward Hockin

The Team

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Editorial A Complex Machine In our first issue published last term, we focused on a fairly new interest within modern economics, social mobility. In the second and last issue of Rationale 2015-2016, we focus instead on a topic that has occupied a lot of interest in economics throughout the years: industrial policy. Industrial policy is a divisive topic which continues to draw ideological, historical, and other forms of debate. This is justified, as the economy is a complex machine, and how the government should tweak it is a difficult question to answer. Within industrial policy, we focus on three different areas: development, technology, and policy within specific sectors. We also have a section of misfits, articles that don’t fit in within the mould but are nonetheless important in giving a complete picture. The first section is on the often-debated area of development. We start with Konstantin Born’s passionate argument on why we should abandon a traditional view held about industrial policy. Then, we look at Kavya Saxena’s evaluation of infant industry protection. My article follows, featuring a perspective on how countries may escape the middle-income trap with state direction. Next, Robin Park draws from her personal experience with another interesting article, on looking at grassroots development in India. Issues about technology are pervasive and interesting, which is why we feature a section on this topic. Nadine Nikolova’s article presents a view on the tradeoff between innovation and market power in the technology sector. Louis Ariss provides recommendations for sensible innovation policies in the UK. Then, Lukas Raynaud gives us insight into the exciting field of nanotechnology, especially about how the US can learn from failed policies in Russia. ‘New Perspectives’ is a smorgasbord of articles. It features our interview with Professor Alessandro Gavazza, where we get an interesting perspective into the life and work of an industrial economist. Stephen Chandler’s article follows it up with an interesting analysis of Public-Private Partnerships in infrastructure. Then, Vaishali Mullapudi provides recommendations for Los Angeles on how it can deal with congestion issues. Finally, we have Benjamin Aw’s work on the possibility and features of an international tax system. Finally, we look at articles targeted at specific industries. Jaume Vives looks at the internet search industry, and how it may be regulated. Then, we have two articles on policy regarding sustainability. Chris Curfman provides a critical view on the Obama administration’s achievements, and Martin Kabrt’s looks at how Germany fares. Lastly, we have Edward Hockin’s topical article on how the British government should deal with the dying steel industry. I must end by thanking everyone who was involved in this endeavour. The issue would not have been possible without the LSESU Economics Society, and in particular I would like to thank Kaman Liang and Fiona Tan from the Executive. Most importantly, I thank the Rationale team: the writers, editors, and designers, who are credited at the end of the issue, for their great work. It’s been an absolute pleasure working with this team and producing two great issues. We are proud to present to you Issue 2, 20152016 of Rationale, and hope you enjoy it. Best of luck for exams!

PUJAN MODI

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INDUSTRIAL POLICY AND DEVELOPMENT PAG E 6

INDUSTRIAL POLICY AND DEVELOPMENT

Getting Industrial Policy Right in Developing Countries The need for comprehensive industrial policy frameworks by KONSTANTIN BORN

or several decades, the word ‘industrial

countless warnings of the dangers of letting

highly-advanced economies, has used and

policy’ and the ideas it represented was

states pick ‘winners and losers’ still induce a

still uses comprehensive industrial policies

one of the most shunned on the international

narrative that makes many mainstream econ-

extensively in order to create new technolog-

economic policy stage and in the lecture halls

omists and policy makers perceive large-scale

ical capabilities, structurally transform their

and journals of the world’s leading econom-

state intervention in countries with low lev-

economy towards higher-value added indus-

ics departments. Although influential re-

els of institutional capacity and high levels

tries and support the growth of competitive-

searchers have presented strong and nuanced

of corruption and patronage as too risky and

ness and productivity.

cases for the use of state-led industrial policy

even detrimental to development. Thus, instead of having a futile debate on

to promote chosen industries and speed up economic development for decades, the glob-

Given this history, the re-emergence of the

whether and under which conditions de-

al neoliberal consensus that stressed the need

debate around industrial policy can most

veloping countries should develop com-

for increasing market liberalization and low-

definitely be seen as a step in the right di-

prehensive industrial policy frameworks,

er levels of state interference in the economy

rection. However, it ignores several essential

we should acknowledge the overwhelming

made a constructive debate about industrial

facts and is often held back by futile discus-

evidence that all now advanced economies

policy nearly impossible.

sions that distract from what should be the

have used industrial policy in the past and

main goal of scholarship and thinking on in-

are still widely doing so. The most famous

However, since the early 2000s, debates about

dustrial policy: understanding the dynamics

example was without doubt the industrial

industrial policy have seen a significant re-

of industrial policy in order to make them

revolution in Britain, which was to a large

surgence in the public policy debate around

successful, rather than socially and economi-

extent made possible by the first launch of

the continued quest for economic growth

cally expensive failures.

a comprehensive infant industry protection

and the creation of employment in both de-

program under the Walpole government in

veloped and developing countries. Now, even

One of these futile and in many ways mis-

1721. Following the British experience of

the World Bank, which spearheaded and

guided discussions is the debate about the

rapid growth and industrialization, industrial

formed the decades-long ideological quest

role that industrial policy has played in his-

policies were adopted by other major Europe-

against the use of industrial policy and for

torical processes of now advanced capitalist

an powers, most notably France and Germa-

years worried more about ‘government fail-

countries. Whereas the proponents of in-

ny, but also by the USA, Japan and the East

ure’ caused by corrupt and inefficient state

dustrial policy point out that the countries

Asian NICs (newly industrialized countries)

bureaucracies, rather than market failures, is

which are now considered developed have all

in the next century. In Europe, after the Sec-

now recommending its use again.

routinely relied on comprehensive industrial

ond World War, selective industrial policies

and investment plans to become developed,

played an important part in reconstruction,

Nonetheless the debate around industrial

their opponents dispute this interpretation

as they also did in Japan, and state ownership

policy is still characterized by ideological

and point towards the power of trade and

and economic planning were key industrial

mudslinging over differing interpretations of

free market economics to draw in the much

policy instruments which were employed ex-

the desired role of the state in the process of

needed foreign investments and open or en-

tensively to regain competitiveness after the

development and structural transformation.

large the accessible markets for potential new

devastating effects of the war. By the end of

This is especially evident when it comes to the

industries in developing countries.

the 1970s, most Western European states had

use of industrial policy to influence the economic development and growth trajectories

Yet, many well renowned economists - such

of the least and less developed countries. Un-

as Ha-Joon Chang, Dani Rodrik and Joseph

fortunately, the after-aches of failed import

Stiglitz, to name only a few - have presented

substitution industrialization strategies and

very compelling evidence that every coun-

the following wave of neoliberalism and its

try that can now call itself a member of the relatively small and illustrious club of the

PAG E 7

nationalized substantial proportions of their industries and Japan had created a novel institution in charge of large-scale industrial planning, the now famous and much studied Ministry of International Trade and Industry (MITI).

R AT I O N A L E 2 0 1 5 - 1 6

Accordingly, the main focus of the debates

competitive sectors in order to get on the way

and discussions around industrial policy

towards the structural transformation neces-

should rather be a substantial inquiry of what

sary to move up the ladder of development.

shipbuilding and construction. The lessons of the past are clear. First, without a well-planned comprehensive policy frame-

constitutes an ‘intelligent’ industrial and investment policy and how such a policy can be

Because despite the power of the market to

work no country has ever managed to move

successfully put in place.

create competitive efficiency and its ability to

up the ladder of development into higher

often lead to better outcomes than non-mar-

value added industries, as the need to defy

Here, evidence from the unprecedented

ket state monopolies, the high risk and cost

comparative advantage constitutes in almost

rise of the newly industrialized ‘Asian tiger’

for individual entrepreneurs to unilaterally

all instances a market or coordination failure

states points towards the importance of con-

push into new, higher value added indus-

that has to be addressed by the state.

structing comprehensive long-term national

tries holds investment back . Hence, without

development goals, designed and enacted by

state-intervention, many developing coun-

Second, in order to use the initial compara-

independent monitoring and enforcement

tries will stay stuck in a ‘bad equilibrium’

tive advantages to push the boundary of their

agencies that resemble ‘pockets of efficien-

and keep relying on their current advantages,

technological capabilities outwards and start

cy’ with the capacity to autonomously plan,

which can mostly be found in low value add-

defying its comparative advantage, long-term

monitor and enforce integrated industrial

ed primary commodity sector.

comprehensive policy frameworks are indispensable for governments of developing

policies. Chile, for instance, moved from basic indus-

countries. Hence, the claim that developing

By no means does this imply that the state

tries such as mining, forestry, fishing and

countries with low institutional capacities

should lead the market and invest into areas

agriculture to aluminium smelting, salmon

and high levels of corruption are ‘not ready’

where the country has no comparative advan-

farming and winemaking, thanks to a num-

to use industrial policy is at its core very

tages. Rather, it should follow the market and

ber of government initiated long-term plans.

problematic. This effectively means that a

nudge its existing industries through clearly

South Korea has a similar track record of

country will be stuck in this ‘bad equilibrium’

regulated and monitored incentive structures

using the revenue from industries exploit-

of market and coordination failures with very

towards higher productivity.

ing existing comparative advantages such as

little chance to move up the ladder of devel-

cheap labour input to transform its economy

opment.

However, as the previously mentioned exam-

by investing rigorously into formerly com-

ples from Europe, East Asia, and recently also

pletely unproductive and uncompetitive in-

Therefore, it is imperative to focus our efforts

Brazil and Chile show, creating industrial

dustries that could offer a long-term growth

on finding ‘intelligent’ ways to improve the

policy that only focuses on the existing com-

momentum through forward and backward

institutional arrangements and pick the right

parative advantages is not enough and all ex-

linkages. In this way, South Korea managed

policy instruments that can facilitate, moni-

amples of successful industrial policy have in-

to move from one of the most unproductive

tor and enforce these comprehensive long-

volved structural transformation. According

and uncompetitive steel producers in the

term plans. We must do this in order not to

to Justin Lin of the World Bank and Ha-Joon

world with a production volume of less than

repeat the mistakes that led to the failures of

Chang of the University of Cambridge, whose

1% of the world market in the 1970s to pro-

a range of earlier state-led attempts to create

perspectives are comparable but not identi-

ducing almost 15% of the world’s steel output

higher-value industries, such as the unsus-

cal, a country thus has to use its comparative

by the 1990s, which in turn supported new-

tainable import substitution industrialization

advantage in the short-run to ultimately defy

ly emerging industries such as automobiles,

models that failed in Latin America and Afri-

its current advantages and push into new, un-

ca in the 1970s and 80s.

PAG E 8

INDUSTRIAL POLICY AND DEVELOPMENT

Infant Industry Protection by KAVYA SAXENA

ndustrial policy as we know it today tends

how protection can be perilous if these prop-

invest in increasing the scale, or perhaps even

to understate the importance of protec-

ositions are not taken into account.

entering, since others can free ride on the

tion for infant industries. Given the effects

benefits from innovation.

of international competition on growth that

Free trade comes with the promise of effi-

are hardly easy to fathom, this is somewhat

ciencies through knowledge dispersion of the

Is such trade policy that too much to expect

surprising. Competition can as easily drive

techniques and efficient tools of production

from a young and developing nation? On the

innovation as it can give negative incentives

within an industry. The dispersion occurs

one hand, the social benefits of protecting a

to firms that wish to enter a market. Yet re-

from countries and regions that got there

nascent industry may be huge, with increased

sorting to infant industry protection through

first to the disadvantaged ones who didn’t.

employment and demand for goods across

tariffs and other trade barriers is hard to ad-

The simplicity of the argument seems to work

several supply chains. However, the high cost

vocate when so many caveats apply for the

in its favour - except that the cost of actually

that often results from distortions in the fi-

success of such a policy. During a course on

obtaining such knowledge spillovers may be

nancial system as well as inefficiencies in pro-

the economic history of India, Prof. Divya

too high for an industry that is still in its early

viding protection through tariffs or quotas or

Mishra, a proponent of big government, ad-

stages of development. Many of these indus-

production subsidies may outweigh the many

mitted the many caveats to industrial policy,

tries tend to face increasing returns to scale.

benefits. As Arvind Panagarhiya points out in

particularly how such protection must be

Their initial small size may not allow them to

his criticism of the ‘infant protection’ argu-

merely temporary. This admission, in the

invest or to continue production once they

ment, with a well-developed financial sector

context of India’s first post-independence de-

enter the market, since the costs of doing so

an industry can internalize the knowledge

velopmental model, furthered my interest in

outweigh the private return. Industrial policy

spillovers of free trade without the need for

the Bastable-Mill criterion. John Stuart Mill,

thus becomes necessary to finance the in-

government intervention.

in his landmark work, Principles of Political

crease in scale of production in order to be

Economy, cautioned that protection ought to

able to compete and benefit from increased

Yet Panagarhiya’s condition is very big in this

be merely temporary. Just as you would not

trade, with certain caveats attached.

case. Since the private return on entry may be

expect a parent to take care of his or her child forever, it is not possible for a government to protect its industries from competition even after they have reached a level of competitive maturity. Charles Bastable completed Mill’s advice with the condition that the cumulative net benefits provided by the protected industry exceed the cumulative costs of protection as necessary. In this article, I wish to briefly look at the theoretical arguments for and against infant industry protection, and the example of South Korea as a case study in

much lower than the social return, the cost At the crux of the infant industry debate are

of borrowing for such an industry may be

learning economies: whether only the firm

sufficiently high to make the case for govern-

that invests reaps the benefits or the entire in-

ment protection, especially for those nations

dustry does. The distinction makes for quite

with shallow or incomplete capital markets.

different implications. In the former, only

And even for those nations that are now de-

one firm reaps the benefits of innovation,

veloped and face the consequences of global

while in the latter, other firms, upon seeing

trade, which has left many of their traditional

the learning externalities complemented by

industries flailing, it may perhaps be an im-

government intervention, are incentivized to

portant time to question the sanctity of lais-

enter. In certain extreme cases, when there is

sez-faire policies when protection could be

no cost to reaping the benefits, no firm would

the saviour for potential high-growth indus-

PAG E 9

R AT I O N A L E 2 0 1 5 - 1 6

tries with high capital requirements and/or

not. Its exports amount today to one-third

and quotas. This led to excess investment in

high levels of investment uncertainty in the

of the country’s GNP. Since protection of an

those industries favoured by the policy and

short-run, such as, as Phillipe Aghion points

exporting industry does not automatical-

rapid deterioration of economic performance

out, the many sectors involved in green ener-

ly mean an increase in profits for a supplier

of the economy. It is seen as one of the main

gy infrastructure.

as they still have to ensure differentiation to

causes of the real decline in exports in the late

sell in the global market unlike import sub-

1970s and the negative economic growth in

Indeed, the theoretical arguments for and

stitution policy, there is less dependency on

1980. This led to liberalization in the 1980s,

against infant industry protection are legion,

inefficient protection and more incentive to

with strongly competitive industries (and

and each in turn more compelling than the

increase export sales by an entrepreneur.

those which weren’t competitive at all) facing

last. However, perhaps economic history may be a better guide to policy. The biggest challenge to infant industry protection is of course the question of the ability of governments to identify which industries satisfy the Bastable-Mill criterion. In many cases, it is hard to evaluate whether certain interventions were motivated by market failures or by rent-seeking and the pressure of special interest groups on trade policy. The lobby-

“the theoretical arguments for and against infant industry protection are legion”

free trade first, while those industries in the middle were given a few more years of protection. Korea’s experience belies the need to understand how choosing the right industries to protect and the right time to stop is necessary. Infant industry protection remains one of the big historical and economic questions that lack a straightforward answer. The most com-

ing power by such groups has, in many in-

South Korea’s political economy may have al-

pelling arguments against it have been em-

stances, more than not motivated industrial

lowed its protective scheme to be successful.

pirical. For every successful case, there is an-

protection. Since Mill’s pre-requisite requires

The many facets of its institutions - the strong

other that has allowed inefficiencies to persist

industrial policy to be only temporary, it also

role of an economic bureaucracy and its pro-

in the long-run. However, using these cases

becomes important for policymakers to rec-

tection from the influence of special interest

as arguments could be short-sighted, since

ognize when to stop protection, which is a

groups, as well as the influence of the Japa-

each country and industry’s political econ-

tough task for a developing nation that may

nese model which also incorporated industri-

omy differs hugely. Sadly, the counterfactual

not have good access to data and research. It

al protection made its protection policy more

for infant industry protection or its absence

also should be noted that protection through

efficient than is usually seen. That is not to

is also not available. The visible hand of infant

import-substitution may not in fact allow a

say that Korea did not face difficulties along

industry protection remains a hard to defend

country to develop its infant industries. This

the way. Its heavy and chemical industries

yet extremely relevant puzzle for internation-

could be why, as Yoo Jung Ho speculates,

were protected in the 1970s through a combi-

al economics today.

South Korea’s decades-long experiment with

nation of easy credit and interest rate policy,

infant protection succeeded, while India’s did

tax incentives, and protection through tariffs

The East Asian Miracle? How countries struggling with the middle income trap should proceed with industrial policy by PUJAN MODI

he term middle-income trap was coined

status. The report came at the peak of the

scribes the exercise of trying to identify and

in 2007 by Indermit Gill and Homi Kha-

growth boom around the world and especial-

prove that middle income traps exist, using

ras in their report for The World Bank titled

ly in Asia, just before the financial crisis hit.

historical data, as trying to identify whether

An East Asian Renaissance. The trap refers

Much work was done since then to try and

there exist hazards on a golf course, simply

to the phenomenon of slowdown in a coun-

identify whether or not such a trap exists. But

by looking at the golfer’s final score. Good

try’s growth once it reaches middle-income

this does not seem to be the issue. Kharas de-

golfers are able to avoid the hazards, but this

PAG E 1 0

INDUSTRIAL POLICY AND DEVELOPMENT

won’t show up merely from an analysis of the

Typically, the solution to the middle-income

The authors hypothesize that this occurs

trajectory of their scores. The key, then, is to

trap is understood as incentivising research

because the world demand for ‘rich-country

find out what exactly better golfers do in or-

and innovation, which entails the devel-

products’ is elastic, which would allow a de-

der to avoid the hazards, so that others can

opment of new or better products and pro-

veloping country to produce and export large

emulate their modus operandi.

duction methods that exploit comparative

quantities of such goods without significant-

advantages. But comparative advantage alone

ly harming the terms of trade, which is the

The World Bank, in its 1993 report The East

does not explain why Taiwan specialises in

relative value of exports in terms of imports.

Asian Miracle (of which An East Asian Re-

making bicycles (with companies such as Gi-

Essentially, this means that by being able to

naissance was follow up) attempted to explain

ant and Merida being two of the best bicycle

sell large quantities of goods abroad without

the success in 9 of the fastest growing East

manufacturers in the world) and South Korea

a significant change in export price (elastic

Asian Economies: Japan, China, Singapore,

in microwaves, although they have very sim-

demand), countries can reduce the negative

South Korea, Taiwan, Hong Kong, Malay-

ilar strengths. Many new industries in partic-

impact of the relative value of the goods that

sia, Indonesia and Thailand. Crucially, this

ular countries develop because of the exploits

they export (terms of trade). How should a

growth had simultaneously reduced inequal-

of single entrepreneurs, such as the revival of

government go about targeting entry to these

ity and improved most demographic welfare

the cotton industry in India, or due to pushes

industries? In “Industrial Policy in the Twen-

indicators. The report concluded that in ad-

from the government, such as the tulip indus-

ty First Century”, Dani Rodrik outlines what

dition to getting the basics right, namely high

try in Taiwan. Furthermore, counter to what

he believes is the ideal framework for a coun-

“comparative advantage alone does not explain why Taiwan specialises in making bicycles and South Korea in microwaves”

try to follow when deciding on its industrial policy. One of the roots of the problem is that diversification may not occur naturally - entrepreneurs looking for new industries to work in will not necessarily know the potential

rates of investment (particularly unusually

classical theories of international trade may

profits following entry, since market prices

high levels of private investment), widely ac-

suggest, it has been reported in a few import-

of resource allocations that do not yet exist

cessible public education, and improved pro-

ant studies that specialisation and focusing

will be uninformative, or nonexistent. An-

ductivity, “the government intervened sys-

on comparative advantage may not be the key

other major issue is that massive quantity

tematically and through multiple channels-to

in reaching high-income status. Most coun-

of coordinated investments are needed for a

foster development, and in some cases the

tries in fact heavily diversify the number of

new industry to develop. It may be extreme-

development of specific industries.”

sectors they participate in during their mid-

ly difficult for a single actor to overcome this

dle-income years and only specialise once

coordination problem. Governments should

they gain high-income status. So our answer

focus on fixing these key market failures.

With this in mind, we must ask, what specifically is the role of industrial policy in helping

is likely in the method of how a state can push diversification.

In Asia’s Next Giant: South Korea and Late

focuses heavily on the export push amongst

Hausman et al provide clues, in “What you

South Korea’s meteoric rise to this very phe-

the aforementioned countries as a key policy

export matters”, as to which products a mid-

nomenon, which is termed as ‘late industri-

factor that led to growth in these countries

dle income government should target in or-

alization’. A prominent aspect of Korea’s en-

in earlier stages of development. However,

der to move up the income ladder. The main

try into the high-income club has been the

simply following the same policies may not

finding of the paper is, “Everything else be-

strength of the chaebol (conglomerates). They

be helpful in countries which face substantial

ing the same, countries that specialize in the

exhibit the type of diversification that would

difficulty in breaking out of their middle-in-

types of goods that rich countries export

be counter to neoclassical economic logic.

come status. This is particularly because ex-

are likely to grow faster than countries that

Comparative advantage cannot explain why a

ports are now seen to have a selection effect: a

specialize in other goods.” The authors find

company would be involved in construction,

sign that a company is successful, rather than

that middle-income countries which pro-

electronics and insurance, and be immense-

the reason for a company’s success. So push-

duce ‘rich-country products’ tend to become

ly successful in each venture, but Samsung

ing exports may raise revenues for companies

successful and countries which continue to

does it. Further, Amsden argues that the state

but may not encourage innovation or entry

produce ‘poor-country products’ are unable

should attempt to deliberately distort the

into new industries.

to raise income levels to the same degree.

prices (through tariffs, export subsidies, etc.),

propel economies from middle income to high income status? The East Asian Miracle

Industrialization, Alice Amsden attributes

in new industries in order to provide the in-

PAG E 1 1

R AT I O N A L E 2 0 1 5 - 1 6

centives to create activity in them. Although

government to let ventures that do not work

best way to internalize coordination exter-

South Korea used these extensively to devel-

out fail. This was exhibited in South Korea as

nalities is to develop a culture of account-

op new industries this claim cannot hold in

well, with inefficient and mismanaged chae-

ability and transparency in the relationships

the modern context where protectionist pol-

bol such as the Korea Shipbuilding and Engi-

between governments and private sector

icies are difficult to implement due to many

neering Company and the Kujke-ICC group,

entities. Chambers of commerce and labour

trade agreements. International treaties must

which were allowed to fail or were broken up.

associations can play an instrumental role

recognize that middle-income countries need

in this. There are many other mechanisms

sufficient industrial policy space in order to

Rodrik provides some concrete examples of

that can be put forth, but one of the import-

develop further.

processes that might help incentivise over-

ant parts of the process is to recognise that

coming the market failures. One is the setting

unlike what was the assumption for most of

Rodrik suggests that the correct way to do in-

up of a competitive self-discovery process that

the 90s, industrial policy is alive and well in

dustrial policy is not to focus only on taxes or

subsidises the earliest stages of cost discovery

most developing countries: the tools simply

subsidies. Instead, governments should work

in a new industry. Some criteria that could

need to be redeployed in order to meet the

closely with the private sector to find areas

be used in choosing proposals could include

goal of breaking into the high-income status,

where they can collaborate to overcome the

learning spillovers to others in the economy,

as Korea was able to.

most significant obstacles to the problems of

and a willingness to submit to collaboration

restructuring. His most important claim is

with and oversight from the government. A

The East Asian â&#x20AC;&#x2DC;miracleâ&#x20AC;&#x2122; was hardly a miracle.

that states should not focus on particular pol-

second is the need to develop systems which

It involved conceited efforts on the parts of

icy outcomes whose success is unknowable

provide capital for higher-risk ventures,

the governments that managed to get their

prior to implementation, instead to follow the

which is usually required for exploring new

countries to grow very rapidly. Evidently,

process of reducing the aforementioned ex-

industries, but commercial banks are reluc-

through effective use of industrial policy, Ko-

ternalities whose presence leads to the retar-

tant to provide. Examples are development

rea was able to break into the high-income

dation of diversification. Further to promot-

banks, venture funds that are publicly funded

group. It will take the rest of the East Asian

ing new industries that are successful, there

but managed professionally and government

countries a similar approach to score a par.

must also be a willingness on the part of the

backing for longer term loans. Thirdly, the

Incorporating Grassroots Action A new approach to rural development in India by ROBIN PARK

found myself in India in the summer of

The distinguishing characteristic between

usually come to stay. Then we visited a cou-

2015, for a summer research project on or-

metropolitan and rural areas is, surely, the

ple of newly built schoolhouses, a specialised

ganised atheism. As part of my project, I was

quality and quantity of infrastructure. Villag-

weaversâ&#x20AC;&#x2122; colony filled with wooden looms of

staying at the Atheist Centre in Vijayawada,

es in India lack even the most seemingly basic

all sizes, and a sprawling marketplace which

Andhra Pradesh, where the Goras, a histor-

infrastructure such as sewage, irrigation, and

seemed like a maze, all of which were funded

ically atheist family since the Gandhian era,

paved roads. We drove two hours on a dirt

by the organisation. The most fascinating of

runs a series of charitable NGOs without ties

road by the river watching half-built concrete

all the projects, however, were the Ecosan toi-

to religion. One of the organisations, called

structures and barefooted vendors selling

lets at a particular village called Regullanka.

Arthik Samata Mandal (ASM) focuses on

colourful fruit dotting the bank pass by. Ar-

bridging the economic gap between rural

riving at the edges of Srikakulam, it was excit-

It is famously difficult to encourage Indian

and urban India. As an economics student,

ing to see the changes brought by the NGOs

villagers to use toilets. Villagers view toilets

I expressed particular interest in ASM, and

juxtaposed by the many thatched-roof houses

as impure and prefer open defecation, even

the Goras agreed to take me to the rural ar-

and crumbling mud fences in the district.

though there are serious dangers associated with it, such as pollution of groundwater

eas in the Srikakulam district, some 150 km outside Vijyawada, to see some of the projects

I was first shown a hospital and led to a hous-

and danger of injury or rape, especially for

in motion.

ing campus for tea, where the volunteers

women. The toilets at Regullanka were built

PAG E 1 2

INDUSTRIAL POLICY AND DEVELOPMENT

after months of trust building between the

Furthermore, even if the villagers can be con-

that villagers are eagerly awaiting rescue from

organization and the villagers, and demon-

vinced about the benefits of new infrastruc-

their current ways of life. Rural development

strating their benefits, which are many. The

ture (as in the case of Regullanka), they are

NGOs such as the Swades Foundation have

concrete outhouses are multifunctional and

unable to pay for the infrastructure as long as

found that despite the fact that 19% of the In-

can double up as storm shelters during mon-

it is not also accompanied by a rise in income.

dian population needs spectacles or cataract

soon season. No water is necessary to use the

Subsidies and freebies are unsustainable in

surgeries, the villagers will not show up for

toilets - all the wastewater is collected and

the long-term; the villagers must find a way

free eye clinics that it provides. Similarly, the

taken to the fields to serve as fertiliser, and

to fund their own development in order to

mere existence of school facilities does not

ash is sprinkled on the toilets after use to dry

generate the sustained growth it needs. The

guarantee the children’s attendance. In fact,

up any remaining wastewater and banish any

second hurdle, then, is for the villagers to

they are more likely to not attend, spending

odour. By the end of their project, ASM had

actively utilise the provided infrastructure

time earning wages for their families instead.

built a toilet for every household in Regullan-

and realise their own potential for econom-

In order for sustainable growth to occur,

ka, which made headlines in national news-

ic progress. Infrastructure must be accom-

the villagers must be guided to realize their

papers. Mrs. Nau Gora, secretary of ASM,

panied by education on how to take proper

own potential for growth. ASM has worked

informed me that the government had taken

advantage of it—just like handing out car

to build a weavers’ colony in one of the Sri-

notice and begun to build roads into the vil-

parts is useless without instructions on how

kakulam villages, supplying looms, connect-

lage, which stretched into to the metropolitan

to properly assemble them. It is important to

ing artisans with merchants, and facilitating

areas.

note that the marginal willingness to pay for

transport to get the goods to the urban mar-

infrastructure is as much dependent on be-

kets. The process is now largely self-sufficient

havioural constraints as it is on income.

without the supervision of the organisation

The miraculous development and economic growth of Regullanka due to the support of

and has drastically improved the quality of

ASM has earned it the structural connection

As it stands, the government often employs

food, clothing, and health of the villagers in

to the metropolitan areas. However, the sus-

the top-down strategy in funding rural de-

the colony. Only after the villagers are edu-

tainability of its growth depends on the choic-

velopment projects, like with the roads to

cated and convinced about the benefits of the

es and behaviours of its inhabitants, many of

Regullanka. However, just because the scale

proposed infrastructure will they mobilize to

whom are reluctant to leave their rooted ways

of the project is macroeconomic does not

create the change that they need to sustain

of life, due to religious and family traditions,

mean that the microeconomic constraints

a higher quality of life, and the top-down

the rejection of foreign influences, and a gen-

disappear. Prime Minister Narendra Modi

method may see more success.

eral disinclination to deviate from habits. As

has made it his primary goal to revive India’s

mentioned before, the toilets of Regullanka

road infrastructure, pledging to invest over

It is possible for the government to allocate

were not built overnight—the villagers had to

ten billion dollars in the road sector in the an-

rural task forces to take on a more holistic

be convinced about their benefits and prod-

nual budget. However, lack of private sector

approach to development, rather than merely

ded to accept change. ASM’s successful proj-

participation and lower than expected traffic

setting aside money towards projects with-

ects, which have generated economic activity

has bogged down debts and created indefinite

out considering the behavioural responses.

and development in Srikakulam district, to-

halts in the process. This problem persists in

However, there are already NGOs and social

gether with their persistent efforts to educate

already urbanised areas and is even worse in

enterprises that are familiar with these be-

the villagers about health and sanitation, is

the villages, where behavioural constraints

havioural obstacles that have been focused

ultimately what won over the villagers. Given

are stricter, as previously described.

on providing the required level of time and

the publicity received by the village, the gov-

effort. Encouraging these existing key play-

ernment has built roads, but again, the initial

Hence, the issues extend much deeper than

ers by providing adequate funding and rec-

challenge lies in encouraging the villagers to

just supply side constraints - funding or man-

ognition could be the pivotal move that gets

utilize them.

power. The fundamental problem of rural de-

rural India the infrastructure and economic

velopment India is the incorrect assumption

growth that it needs.

PAG E 1 3

R AT I O N A L E 2 0 1 5 - 1 6

TECHNOLOGY PAG E 1 4

TECHNOLOGY

Finding Balance Innovating antitrust policy in technology by NADINE NIKOLOVA

mazon is being investigated by Eu-

derstand the repercussions of regulating such

and thus innovation because it mandates a

ropean regulators over their possible

a significant sector.

higher quality of product being produced. So

monopoly in the e-book industry. Google

how should better regulation be formed?

received an antitrust complaint from the Fed-

Every story has two sides, and looking to

eral Trade Commission on claims that they

classical economic theory for answers to the

The effects of economic regulation as a whole

shut out rival search engines. Qualcomm is

question of regulating innovation yields a

on technological innovation tend to fall on

under investigation from EU Commission-

bleak answer. A main argument against reg-

either side of the argument, but there are

ers over whether they abused their market

ulation stems from the belief that in an effort

certain forms of regulation which are less

position to undercut their competitors after

to comply with regulations, companies face

costly to innovation than others, and more

previously being fined $975 million in order

a cost burden that redirects their resources

welcomed by technology companies. Regu-

to settle a Chinese antitrust investigation.

and investment potential away from innova-

lation that forms a partnership or support-

Apple was under scrutiny for its tax arrange-

tion and into compliance. Many of the major

ive framework for tech products proves to

ments in Ireland, potential antitrust viola-

tech companies have banded behind this ar-

be more beneficial than backward looking,

tions with regards to their music streaming

gument and have formed lobbying groups to

punitive regulation. Additionally, the most

network, and their dominant position in the

fight regulation. The Internet Association is

effective regulations at stimulating innova-

mobile software market. Facebook is having

an example of such a group of giants within

tion require what is known as compliance

their privacy settings examined by regula-

the technology industry fighting regulation

innovation and simultaneously minimize

tors. Microsoft had to pay fines of $1.8 billion

“Europe has tried and failed both to match the strength of the US’s Silicon Valley”

for violating European competition rules. Wondering about other tech giants like Intel and IBM? They are involved in a probe from the US Department of Justice over whether their hiring practices violate antitrust laws. Everywhere one turns, there is yet another tech giant facing charges or investigations

the associated compliance burden and risk of producing failed technologies. Where compliance innovation is not required to meet the new regulations, innovation will be stifled and only circumventive innovation may prevail. Key features of regulations that aid innovation are a greater flexibility in allowing for various implementation paths towards

into whether they abused their market pow-

such as privacy legislation and online sales

compliance and more complete innovation.

er or took advantage of their consumers. If

tax reform under the pretext that this sort of

The trade-off between the imposed com-

the charges are validated, the company is hit

legislation impedes innovation. With names

pliance burden and subsequent innovation

with massive fines. Even if found not guilty,

such as Google, Facebook, Amazon, and eBay

must also be considered as well as the degree

the years spent embroiled in legal proceed-

in the mix, they present a formidable opposi-

of policy uncertainty. When uncertainty in a

ings take a toll on the company’s productiv-

tion. They claim that the Internet, when free

policy is high, firms will delay innovation in-

ity and bottom line. This is all done in the

from regulation, has “unleashed unprece-

vestment until the policy becomes more cer-

name of protecting the consumer, but in the

dented…innovation” because of its ability to

tain or may reject the idea of innovation in

long run, we must consider just how benefi-

offer low-to-nonexistent barriers to entry. On

the uncertain direction entirely. In addition,

cial all this regulation really is. Just like the

the flip side, regulators are not so convinced

regulation with moving targets will encour-

laws of physics dictate that with every action

of the loss to innovation, and even where

age incremental innovation which comes at

comes an equal and opposite reaction, does

economic inefficiency might arise, they in-

lower cost and risk whereas sudden, disrup-

government regulation come with a tradeoff

sist that it is a sacrifice that must be made in

tive regulation will force a higher compliance

to innovation? More than half of the growth

the name of social welfare. Proponents of the

burden on firms and increase the likelihood

in productivity is credited to technological

Porter Hypothesis assert that environmen-

of failed inventions. In short, the ideal form

change, and with so much weight hanging in

tal, health, and safety regulation can actually

of regulation should be flexible, expedient,

the balance, it is of great importance to un-

increase competitiveness within an industry

and unambiguous.

PAG E 1 5

R AT I O N A L E 2 0 1 5 - 1 6

An interesting macro level comparison of

capitalization in the United States versus

but rather shape the direction in which com-

regulation policies and innovation in tech-

those in Europe highlights this discrepancy.

panies develop their products if they want to

nology arises between Europe and the Unit-

In the US, three of the top ten companies are

sell them to government agencies. With this

ed States. In terms of research prowess and

tech companies while no tech company is

heightening of acceptable standards, tech

scientific might, both countries are relatively

represented in the top ten of Europe. Nokia

companies must innovate their products to

well matched. However, Europe has tried and

used to be a global leader in the mobile tech

meet the accessibility requirement if they

failed both to match the strength of the US’s

industry and had all the same technology and

want to keep selling their products to the

Silicon Valley, and establish such a center of

resources at their disposal as companies like

biggest purchaser of tech, the US govern-

technological innovation for themselves. This

Apple and Google did, but put it all togeth-

ment. Microsoft applauded these measures

inability to pioneer disruptive innovation

er too late to be a major player in the space,

when they were passed in 2002, stating that

in the manner of the US stems from sever-

thereby losing their market share. Nokia’s

the measures would encourage the industry

al causes, but one that cannot be ignored is

failure to retain their market share is just one

“to compete more vigorously to develop in-

the difference in attitudes over regulation.

example of how European infrastructure to

novative technologies” because it refocuses

Companies in Europe have the ability to in-

support innovation is simply not as strong as

technology companies on “competing on the

novate on the same level as those in the US,

that in America. Furthermore, the attitudes

basis of accessibility” which ultimately bene-

but they are missing the government support

of most European governments are not sup-

fits people with disabilities.

and initiative prevalent in the US. Whereas a

portive enough to embrace disruptive inno-

“fearless culture” fuels the US technology gi-

vation. Dublin, however, proves there is hope

That is not to say that the United States is free

ants, Europe finds itself caught in an antitrust

for Europe provided that changes in regula-

from issues plaguing innovation. In fact, the

fervor against the likes of Apple, Google, and

tion take place. Through a combination of a

opposite is true. The trend in tech innovations

Facebook. While the major barriers might

competitive tax system, a reduction in reg-

over the past half-century was focused on the

stem from cultural factors, these are ultimate-

ulatory red tape, and a strong system of in-

creation of revolutionary products such as

ly magnified and represented in government

novation support, Dublin has become a new

the iPhone and the 360 computer coming

regulation. Europe faces rigid employment

international tech capital as companies like

from the titans of the tech industry, Apple

laws that restrict growth, more punitive

Google, Facebook, Twitter, and Microsoft

and IBM respectively. However, that trend

bankruptcy codes, and a relatively unwel-

have all expanded into Dublin.

has now turned towards these giants buying out smaller startups and incorporating them

coming environment for the new and disruptive. When Uber began to make inroads

Looking to the US for examples of better

into their businesses. Facebook, recognized

into Europe, it was received “like the arrival

innovation legislation yields the example of

as the most innovative company of the past

of a virus” due to the strong taxi unions. Just

Section 508 of the Rehabilitation Act. The

decade, is a prime example of this behavior,

looking at the top ten companies by market

strict accessibility standards found in Section

buying WhatsApp for $19 billion and Insta-

508 do not regulate the technology industry,

gram for $1 billion. Similar trends are found

PAG E 1 6

TECHNOLOGY

in Apple and Google’s business dealings. So

tion cannot keep up with innovation. It took

what economists call “network effects” which

why are such companies failing to bring inno-

European regulators 14 years to impose a $1.1

entrench the big players of the consumer tech

vation to market like they used to? One rea-

billion fine on Microsoft for abusing its dom-

industry, the more people use their products.

son is the high amounts of regulation these

inant position in the market. The Justice De-

These companies are so well insulated against

companies face, restricting them from inno-

partment in the US claimed the antitrust suit

competition that regulations against them

vating at the same speed as smaller startups.

they brought against Microsoft removed their

cycle through and pass market dominance

They face greater scrutiny from regulators, a

monopoly and created the greater competi-

from one to the other. Thus, regulation does

wall of compliance procedures, and regularly

tion seen today which resulted in products

nothing to push innovation out of the large

have their investments diverted from radical,

such as cloud computing and mobile devices.

companies, and does little to encourage inno-

new innovations. Government regulation has

However, the evidence instead points toward

vation from smaller upstarts which innovate

pushed the focus away from creating the next

a rather detrimental effect this regulation had

at the same rate as before. Rather, it creates

big thing and instead towards improving yes-

on Microsoft in slowing its innovation in the

an environment in which large technology

terday’s big thing to make it greener or cheap-

face of the regulatory scrutiny and legal in-

companies jockey to out-do their nearest

er. In addition to the heightened scrutiny, the

vestigations. The very nature of the technolo-

competitors by taking away their market

bigger the tech companies become, the more

gy market tends to be monopolistic in nature

share and resort to buying innovation instead

they are legally responsible to do what is right

as companies regularly introduce new prod-

of creating it.

by their shareholders. One does not have to

ucts and services that grab the attention of

look much further than the separation of

the market before being replaced by the next

In the end, it is the larger firms who have the

Google from Alphabet to see this in play.

new product. Essentially what regulations

money to innovate but are under less pressure

This is not to say that government regulation

so far have achieved is to remove monopoly

to innovate while the smaller technological

necessarily facilitates innovation in smaller

power from one tech giant by crippling their

firms face greater competition to innovate

technology companies, but rather places a

operations through investigations and fines

but lack the resources to do so. Rights such

burden on larger companies that effectively

and instead pass the monopoly power on to

as patents and copyrights that have been tra-

slows their rates of innovation and makes

another one of the giants in the field. When

ditionally used to encourage innovation have

it more attractive to buy smaller companies

the Justice Department accused Apple of

now been turned into a path towards monop-

faced with fewer barriers.

fixing its e-book prices to beat the discounts

oly and have created a barrier to collaborative

offered by Amazon and began imposing reg-

innovation. The real avenue government reg-

So where does that leave us with the regu-

ulatory actions on Apple’s behavior, this ef-

ulation should be pursuing with respect to the

lations of late? The higher profile cases have

fectively shifted market dominance directly

technology industry should be the creation of

been punitive in nature, delayed in response,

to Amazon, the only other major competitor

an institutional structure that encourages and

and their effects have been resoundingly am-

in the space. Inherent to the tech industry is

rewards policy innovation, rather than trying

biguous. In many cases, it seems that regula-

to limit market share or power.

PAG E 1 7

R AT I O N A L E 2 0 1 5 - 1 6

An Urgent Challenge in Britain Making sure that the technologies of tomorrow benefit us all by LOUIS ARISS

he British government should active-

innovation relative to other advanced econo-

predictable, and so much riskier than, gov-

ly ensure that future growth – driven

mies highlights the urgency of active innova-

ernment projects. In other words, the govern-

mainly by technological progress – is both

tion policy. As shown on the graph below, the

ment can provide a vision that transcends the

sustainable and inclusive. On the one hand,

UK has consistently spent less as a percentage

economic fundamentals and incorporates the

the UK, along with the rest of the global

of GDP on R&D than the other advanced

social benefits of technologies. Governments

economy, faces significant challenges which

economies

Productivity

can provide direct support to innovators by

will accentuate over time: food, water and en-

growth grew at a fairly constant trend of 2%

funding the R&D throughout the entire de-

ergy shortages; climate change and rising sea

per year since the 1970s, but has stalled since

velopment process. For example, the US De-

levels; the ineffectiveness and limitations of

2008. The Office of Budgetary Responsibility

partment of Defense was the only consumer

(except

Italy).

for integrated circuits in 1962, initially to develop technology to put someone on the moon. However, by the early 1970s, this technology allowed radios and pocket calculators to be created, and eventually paved the way for the Internet. Second, the British government should tackle directly the structural impact of “creative destruction” on the labour market. New technologies have disrupted certain sectors at an unprecedented speed. For example, Uber has threatened the traditional taxi industry. Google’s self-driving cars may, in turn, threaten Uber’s business model. However, intensive investment in education can create a resilient labour force with skills that are transferable across different sectors of the economy, such domestic policymaking in a globalized world

states that, if productivity remains stagnant

as problem solving, effective communication

economy. On the other hand, as shown below,

until 2020, “The government would miss all

and critical thinking. Furthermore, universi-

the McKinsey Global Institute estimates that

of its current and proposed fiscal targets”.

ty degrees that complement the “disruptive dozen”, notably biomedical sciences, engi-

a group of industries labelled the “disruptive dozen” – which include IT, robotics, renewable energy, bioscience and materials – could, together, generate $14-33bn per year by 2025. In light of both these challenges and oppor-

First, the British government can generate

neering and computer sciences, should be

“the state has the potential to complement the market mechanism”

tunities, the state has the potential to complement the market mechanism that, by itself,

demand for new technologies by creating and

strongly encouraged. This combination of

has not generated sustainable, inclusive and

shaping markets. Transformative innovation

relevant and flexible skills would allow work-

desirable outcomes.

often does not meet the risk-reward bench-

ers, coupled with strong social safety nets, to

marks set by angel investors and venture

manage the transition to future jobs.

Indeed, the underperformance of the UK in

capital funds. Consumer demand is far less

PAG E 1 8

TECHNOLOGY

Third, as innovation tends to encourage the

graphene-related patents filed globally.

growth of global super-firms such as Ama-

technologies is successful. Dani Rodrik, Professor of International Political Economy at

zon that have achieved global monopolies

Fourth, the government of the UK should

Harvard University, suggests that states ought

through large fixed costs, initial losses and

actively ensure that technological progress

to establish a number of professionally-man-

aggressive expansion, the British government

results in inclusive growth. On the one hand,

aged public venture funds. They would take

should revise competition policy to protect

the British financial sector prided itself on its

equity stakes in a large cross section of new

consumers, and domestic firms, against the

increasingly creative and complex financial

technologies. These funds would operate

potential price discrimination and unfair

instruments, at least until the collapse of Leh-

on market principles, and work much like

market power. Interna-

a central bank – in-

tional cooperation should

dependent

of,

but

also be strengthened in

accountable

to,

the

order to prevent wide-

government.

spread tax evasion by

– through the govern-

multinationals.

ment – could end up as

Society

a co-owner of the next This

phenomenon

re-

generation of technol-

flects how easily ideas, capital

and

move

across

boundaries.

ogies.

products national

The

The British state is in

Brit-

a unique position to

ish government should

shape the impact of

encourage more com-

the “disruptive dozen”

panies like Dyson and Vodafone, where the

man Brothers in 2008. As a result, resourc-

by addressing directly their challenges and

ideas, and subsequent value creation, remain

es flowed towards this sector. Following the

seizing their opportunities. Given the low

as long as possible within national borders

large social costs of the financial crisis, the

productivity growth and R&D expenditure

from inception to commercialization. For

net social contribution of this innovation

over the last few years, the British govern-

example, the Manchester University physics

was negative. The excessive transfer of capital

ment should create an environment that is

“the government rarely benefits when the commercialization of new technologies is successful” lab discovered graphene in 2004 – a material

towards sectors that generate relatively little

conducive to private sector innovation, pro-

that is incredibly light and strong, an efficient

social return can be tackled by government

vide direct and long-term demand for tech-

conductor of both heat and electricity, and

supervision and regulation.

nology that will tackle climate change and the

with applications such as foldable phones

low-carbon future, and empower citizens to

and stronger aircraft wings. However, the UK

On the other hand, the government rarely

navigate their way through this era of con-

has since accounted for less than 1% of the

benefits when the commercialization of new

stant adaptation.

PAG E 1 9

R AT I O N A L E 2 0 1 5 - 1 6

Making Sense of Nanotechnology Using sensible policy to unleash the potential by LUKAS RAYNAUD

ot too long along, nanotechnology was

on nanoscale manipulation of carbon), mil-

and how to accordingly guide it through pol-

a playful Hollywood concept: micro-

itary (nanoscale explosives), aerospace (im-

icy decisions.

scopic shrinking to explore the human body,

proved materials for weight and durability),

superpowers granted from robotic devices in

transportation (innovations in automobile

Using statistical software and industry data

our blood streams, nano-viruses utilized for

safety and emission sensors), etc. With this

on changes in capital stock, employment,

mind control—the possibilities were endless.

breadth of influence, we can begin to see the

and value added to GDP, the equation can

But science fiction is quickly becoming a

importance of nanotechnology as not only a

be completed to calculate the % change in

reality. In the scope of today’s technological

standalone industry, but as a catalyst for the

the TFP. However, this model does not fully

revolution, nanotechnology has become the

development of other sectors in the broader

address the endogenous nature of capital and

modern day steam engine, whose invention

economy

labour allocations, and instead treats them as

will drive and reconfigure the global econo-

independent of factors that are not captured

my for decades to come. Leading nations in

within this framework. Nevertheless, taking

the global nanotechnology market are realizing the lasting macroeconomic benefits from their investment in the industry, while developing countries also look to harness the same

“science fiction is quickly becoming a reality”

stimulus. Naturally, policy makers must be

the input allocations as exogenous and simplifying the mathematics still allows us to find an initial estimate of the percent change in TFP. Such estimates can give economists an indication of slowdowns or increased productivity within a given industry over time,

quick and careful to react to this still young and growing industry. This involves not

Nanotechnology is undoubtedly pervasive,

and can influence significant policy measures

only working to generate as much economic

but as an industry itself is it effective? A

as well.

growth as possible, but also treading the fine

more mathematically and empirically rig-

line of economic reconfiguration that is the

orous approach can be taken to analyse the

With all the media, academic, and industrial

notorious and often unnoticed repercussion

nanotechnology industry via an application

hype over nanotechnology, one would initial-

of such creative destruction.

of the Solow Growth Model. Utilizing a

ly assume promising forecasts for the sector

Cobb-Douglas production function fit with

as a whole. The industry has undoubtedly

To understand the role and direction of in-

real industry data, one can derive the “Solow

grown over the past decades, and the contin-

dustrial policy in nanotechnology, it is first

Residual” using logarithmic manipulation

ual entry of countries and firms serves as a

important to understand the nature of the in-

and illustrate the contribution to production

clear indication of the confidence investors

dustry, and why it has seen such fast growth.

not accounted for by changes in labour and

and governments have in the technology.

The National Nanotechnology Initiative

capital accumulation, but by the nature of the

Market research even estimates a $75.8 bil-

(NNI) in the United States defines nanotech-

technology itself. This residual, referred to

lion global nanotechnology market for the

nology as the ‘‘understanding and control of

as “total factor productivity” (TFP), is often

2015-2020 period. However, bandwagons

matter at dimensions of roughly 1–100 nm,

interpreted to indicate the level of “innova-

can fall apart easily; analysis of the Unit-

where unique phenomena enable novel ap-

tion” within an industry. More specifically,

ed States semiconductor industry (a major

plications’’. These novel applications are ex-

it represents how productive the industry

sect of the broad scope of nanotechnolo-

tremely broad: health care (nanoelectronic

is, how promising its growth is, and the im-

gies) illustrates a more sobering story. The

biosensors), agriculture (nanomaterials to

portance of research and development both

industry saw positive change in TFP during

deliver disease and pest control), security

at the firm and industrial level. Using this

the 1984-1994 period, but decreases in pro-

(nanosenors to detect explosives, radiation,

type of analysis, policy makers can not only

ductivity through the 1995-2003 and 2004-

and biochemical contamination), energy

pinpoint which industries to focus resources

2009 periods. Comparatively, the software

(nanotechnology to improve solar-cells),

(innovative or otherwise) towards, but can

development and reproduction industry has

manufacturing (new materials discovered

also understand the nature of the industry

seen positive changes in TFP over the entire

PAG E 2 0

TECHNOLOGY

period, as well as randomly selected exam-

makers, as the implications of becoming the

by the Russian government could not possi-

ple industries (chemical manufacturing, and

global leader in nanotechnology appeared to

bly be met by the nation’s extremely under-

firearm manufacturing). Yet, despite these

be much more lucrative.

developed nanotechnology infrastructure. In

numbers, lobbying continues in the United States to fund nanotechnology centres on na-

2008, only 14,500 R&D personnel existed in The issue of Russian industrial policy in re-

tional and local levels. Policy makers, amidst

Russia (3.9% of all researchers) compared to

150,000 in the United States. Russian policy

the seducing promise of futuristic technolo-

gards to nanotechnology is not one of em-

makers mistakenly focused on creating gov-

gies, can fail to understand the lag between

ployment skill, however, but rather of over-

erning bodies to administer and oversee these

technological revolutions and changes in the

zealous targets and a lack of infrastructure.

economic plans without first understanding

skill of labour. In developed countries like

According to Richard Connolly’s 2013 paper

the discrepancy between what they wanted to

the United States, nano-policy comes in the

titled “State Industrial Policy in Russia: The

achieve and what was actually plausible.

form of financing “nanocenters of excellence”

Nanotechnology Industry”, Russian invest-

rather than training the existing workforce;

ment in the sector began picking up pace

This excessive ambition is typical of techno-

these institutions—often backed by corpo-

shortly after the turn of the millennium. In

logical revolutions, and the mirage of nano-

rate sponsors—employ PhD level technology

2004, nanotechnology was first mentioned in

technology as an economic goldmine proved

experts to push R&D, while the majority of

the Federal Targeted Programs (FTP) report;

to be nothing but an economic ditch for

the workforce does not possess the skill to

in 2007, the FTP report further outlined the

Russia. However, despite the failure of poli-

utilize these new technologies. This discrep-

necessities of Russia joining the global nan-

cy makers to accurately assess infrastructure

“the mirage of nanotechnology as an economic goldmine proved to be nothing but an economic ditch for Russia” ancy between the technology and the worker

otechnology market. According to Connolly,

capabilities or appropriately assign funding

can cause the loss of TFP seen in the United

the Russian government assigned a $3.3 bil-

to labour skill development instead of pure

States; it is important to understand that the

lion budget to the nanotechnology supervi-

R&D, nanotechnology continues to hold pri-

health of the industry is not entirely correlat-

sion council in the hopes of increasing the

ority in various economic strategy reports

ed to the growth of the technology. Regard-

sales of Russian nano-products from $0.7

around the world. Still, this wishful thinking

less, the 2001-2008 period saw a tripling of

billion to $1.5 billion. However, despite hav-

is not without reason. Given the right blend

nanotechnology investments in the United

ing the largest amount of public spending on

of capital and labour requirements, both de-

States from $450 million to $1.5 billion, and

nanotechnology in the world, Russia’s nano-

veloping and developed countries can reap

US government science agencies saw their

technology industry ranks extremely low in

the benefits of the inherent innovation and

nanotechnology budgets increase drastically

global market influence, output, and inno-

economic productivity that the nanotechnol-

during this period. The loss of “innovation”

vation. This is largely due to the fact that the

ogy industry has to offer.

within the industry was overlooked by policy

over-ambitious levels of growth envisioned

PAG E 2 1

R AT I O N A L E 2 0 1 5 - 1 6

NEW PERSPECTIVES PAG E 2 2

NEW PERSPECTIVES

“ D

IN CONVERSATION with Professor Alessandro Gavazza by PUJAN MODI & TRAVIS JAMES

”

r. Alessandro Gavazza is a Professor of Economics in the Department of Economics at the LSE. He completed the MSc in Econometrics and Mathematical Economics at the LSE and his PhD in Economics at New York University. His main re-

search interests lie in industrial organization and applied microeconomics. He teaches class at the undergraduate, masters, and PhD level for the department. In this interview with Rationale, we speak with him about his foray into industrial organization, his recent work, and what he thinks about industrial policy.

»»Pujan Modi (PM): We have heard from students that

I came to the LSE because I wasn’t exactly sure that doing a PhD

you are a very engaged teacher, but you also publish

was the right thing for me. This was a great opportunity to have

very regularly in top journals. How do you effectively

an intermediate step between an undergraduate education and

balance research and teaching?

my PhD. When I started my PhD, I had a clearer sense that that was exactly what I wanted to do. I would strongly recommend

Alessandro Gavazza (AG): Well that’s my job! It’s important to

those who are really motivated and passionate about research

establish some clear boundaries. These term breaks and the

and studying economics to go directly to a PhD program, you

summer term really help to focus on and make good progress

don’t need an MSc.

on research papers. During the term it is usually much more difficult to do intensive research because of other com-

Life as a PhD student is really intense, the coursework is

mitments. There is the teaching, there are sem-

not only difficult, but it’s really a full immersion,

inars, I like to spend quite some time with

like a bootcamp! During my first year of

my PhD students, and I try to spend

the PhD, I was spending 80-100 hours

one or two days a week working from

per week on it. You wake up, and then

home just to make sure that my re-

either you go to class or you work

search progresses while I devote

really hard. You need a lot of dis-

most of my time to other activities.

cipline relative to here. In the US,

Whereas the summer is exactly the

there is the advantage that the

time when I am able to really push

pace of the course gives you disci-

forward with some of my research

pline. You have midterms, finals ev-

activities. And the Easter break for

ery quarter, you have weekly problem

me is like the start of the summer. It’s

sets, and it’s a big investment on behalf

really about allocating your time efficient-

of the faculty to train a PhD student. They

ly.

want to make sure it is paying off. Therefore, if people don’t show up, or don’t submit problem sets, or

»»Travis James (TJ): Based on your experiences at LSE

your performance is not up to the standard, you’re going to get

and NYU, what advice would you give to current stu-

warnings early on. So these really help you to be disciplined,

dents considering graduate and doctoral studies in

because you have continuous testing.

economics? Specifically distinguishing between the lifestyle, study and course material.

So the first year is really intense and you learn a lot of things. You learn a lot of maths and theory, usually. Then during the

AG: Firstly, it depends on the subjects. I can only confidently

course of the PhD, most people transition towards the applied.

speak about economics. Most of what I will say will also broadly

Economics is a great applied discipline, and amongst the social

apply to related areas such as public policy or finance, but only

sciences, the most successful in combining theory and data. In

partly.

particular, we have a simple model that guides our empirical

PAG E 2 3

R AT I O N A L E 2 0 1 5 - 1 6

analysis- rational choice, and the role of markets in allocat-

curious and interested in thinking about how markets work.

ing goods, and so on. And therefore empirical analysis always

And that’s basically what I do in my research everyday- I think

thinks about why certain individuals would do certain things,

about specific markets, and how consumers and suppliers are

or why certain products would emerge in the marketplace. This

interacting. And I really enjoy studying different issues and mar-

methodology has allowed economics to expand into other so-

kets. And I enjoy communicating it to students at different levels:

cial sciences. Therefore, although you start training in a mainly

I teach undergraduate, masters, and PhD students so I have a

methodological manner, during your PhD, you get to expand

whole array of people to whom I try to communicate how to

into more applied topics. And a lot of economists who publish,

look at the world through the lenses of a simple model. I defi-

do so in an applied manner.

nitely like being on the supply side of teaching!

“

”

economics has a simple way to think about any problem

»»PM: Empiricism in industrial organization (IO) has gained a lot of momentum in recent years. Would you like to describe some current research trends, and where do you see research in this field going in the near future? AG: As you say, IO in the US, which from an academic economics point of view, is the leading country, has become mainly empiri-

»»TJ: What drove you to do research in economics, and

cal. I was mentioning before that applied research tries to think

specifically in industrial organization?

about policy problems as well, and tries to think about how markets are evolving. So, in the past twenty years in IO, there

AG: I think I was really passionate about economics as a won-

has been a lot of emphasis on building empirical models which

derful way to look at the world, and to think about the interac-

allow researchers to study individual markets. There has been a

tion between individuals. Markets are for individuals. There is a

lot of work done on studying consumer demand, and empirical

consumer’s need and a supplier’s ability to help the consumer

models that try to capture the richness of the market and prod-

fulfil this need. I really like, as I mentioned before, the fact that

ucts offered in the market. Cars are a great example of that: try-

economics has a simple way to think about any problem. A con-

ing to understand a market with a variety of products that are

sumer is trying to achieve a goal: that is what maximization is

offered in the car market, likewise some sophisticated models of

about. You go to the supermarket, you’re not blindly shopping.

consumer demand. Similarly, there has been a lot of emphasis

You like cereals, you like cookies, and that’s how you think about

on understanding suppliers’ incentives: what are the costs of

breakfast. You like Chinese food, I like French food and that’s

suppling certain products? What are the substitution patterns?

how we think about restaurants. There is demand from us con-

Is this product likely to be launched by a rival? So there are a lot

sumers, there are firms that try to cater to the preferences of

of questions on the working of individual markets.

these individuals, and through empirical analysis, I was really

PAG E 2 4

NEW PERSPECTIVES

A lot of these methodological tools have now been applied to

how this is affecting their other businesses. There are questions

policy questions and studying new markets, such as the internet

related to credit cards and whether we should charge mer-

markets. Examples include the effect of the internet on hotels,

chants or consumers. Can a merchant choose a different price

ride sharing in cities, or how the internet affects the information

for a debit and credit card? Economists are really helping solve

that consumers get about a particular product. From a policy

these issues, or at least address them by combining theory and

point of view, the traditional questions that economists try to

data.

focus on are antitrust questions: the likely impacts of mergers on consumers, such as through prices or product variety. Simi-

»»PM: Increased use of the internet and 3rd party web-

larly, the effects on consumers and rivals when there are verti-

sites and software in the real estate market led to sig-

cal agreements between firms. Combining theoretical analysis

nificant welfare gains for homebuyers by removing the

with data and therefore putting together a simple model that is

domain knowledge that real estate agents had. Do you

able to speak to the first order issues in the data is the way IO

see a similar impact in the used car market?

is today. There are a lot of applied questions, and another example is that now a lot of people in the US focus on healthcare markets, where there are more healthcare markets than in the UK where the NHS is dominant. So there are lots of interesting questions about the role of the insurance industry, the role of hospital groups, negotiation over fees and the role of Medicare. Similarly, there are lots of research possibilities in the entertainment industries nowadays. How is the internet changing the TV market, such as through Netflix? How has it changed the role of distributors? How the consumer bypassing the cable companies is really affecting the equilibrium in the market. There are also antitrust issues. Regarding Google, for example, whether they are leveraging market power through their search engine, and

“

”

we think that all these information effects should lead to a better allocation

AG: In a lot of cases, the first order effect of the internet in the market was to give the consumer more information. The example that you gave about real estate is a wonderful one. Now websites such as Rightmove or Zoopla will give you a much broader overview of the market rather than visiting individual real estate agents, which was the case previous to the existence of the former. There are interesting questions of trying to understand who is getting these gains. The consumers are searching better, but perhaps the sellers, or landlords, also have more access to buyers, and are able to extract better prices. More generally, we think that all these information effects should lead to a better allocation, with the gains being spread between buyers and sellers and both gain from having a thicker market. The buyer is able to get a house that they really like and therefore the seller of the house may be able to charge a higher price. So everybody is better off by having more information. The used car market is a great example. There is a lot more information about individual goods, and inventories that suppliers have. This has reached the point where you can buy cars on the internet, for example, through eBay motors. A lot of people

PAG E 2 5

R AT I O N A L E 2 0 1 5 - 1 6

are comfortable buying cars online because these websites pro-

ket means you reduce price or supply purer drugs, and so the

vide such reliable information that you don’t even need to test-

buyers get better deals. If you think getting a deal to a buyer

drive the car anymore. This is one fundamental way in which

is a way of attracting more buyers into the market, which is a

the internet is affecting lots of markets.

standard assumption in economics, then by increasing penalties, you may have some additional buyers entering the market

“

”

by increasing penalties, you may make longterm relationships between buyers and sellers in the illicit drug market stronger

because they get a better deal. It’s very difficult to have data which speak directly to this issue. In the paper, we point out this possibility. We have some time series data which suggests that this may be a contributing factor but it is very difficult to quantify this effect directly. But nonetheless, the role of a researcher is to point out some possibilities. This is a theoretical possibility, which our model is highlighting. Hopefully, we can get better data in the future, which is able to better quantify our findings. On this term, my main policy advice is to always collect more good quality data. Currently, I am not in the position to make very clear policy statements because I don’t think we have a clear sense of the magnitude of the effect. But generally, col-

»»TJ: A lot of your recent work has focused on market

lecting more data is a fundamental way in which policy should

failures in specific industries. What role do you see the

be pursued, since it leads to more informed, research-based de-

government having in reducing the frictions in, say, the

cisions which is something any economist would suggest.

health insurance, or financial markets in the US? »»PM: What do you see is the role of an academic econAG: There are a lot of situations in which providing informa-

omist in driving industrial policy?

tion to consumers is a very cheap way of intervening in these markets. For example, the recently introduced health insurance

AG: You can be an advisor to perhaps the government or an

platforms in the United States under ‘Obamacare’, where con-

agency, or a Central Bank. You can be a consultant for a com-

sumers are easily able to compare the prices and character-

pany. More generally, I think our fundamental role is to be ed-

istics of the products they are buying. Think about the labels

ucators of students. I really see myself in that position mostly,

we have on many of the products we buy in the supermarkets.

where I just try to convey and teach a way to think about the

They convey very useful information to consumers. This is sim-

world and a way to use data to solve a problem. That’s what

ple regulation which is relatively inexpensive. It is a very useful

education is about, making society better, by giving more in-

way to give information to consumers. When you open a credit

formation and tools to individuals. As a result of that, we will

card account, the fact that some information about the finan-

make better decisions if we are more educated. Of course this is

cial products is standardized is so you have an interest rate that

a long-term plan, but I really think this is the main role that ac-

is comparable across banks. There are similarly simple ways to

ademia has. And then there are some people who spend more

provide information that are not too intrusive, where the prod-

time giving advice to policymakers, regulators and firms, and

ucts may be otherwise difficult to compare.

that’s perfectly fine. But I see really our role as an institution and faculty to teach our students. Doing our research and work

»»TJ: In your upcoming paper on the sale of illicit drugs,

outside of school allows us to become better teachers. And bet-

you find interesting effects of increasing the penalties

ter teachers mean that the students we are teaching are more

in buyers and sellers. What do you think this means for

informed, and they can make better choices in their life.

policy makers who are trying to reduce drug use in the country? AG: It’s a difficult question. What the paper suggests is that by increasing penalties, you may make long-term relationships between buyers and sellers in the illicit drug market stronger. So each seller will have less competition, and will be more willing to invest in a relationship with a buyer, which in the drug mar-

“

PAG E 2 6

”

our fundamental role is to be educators of students

NEW PERSPECTIVES

Learning to Let Go Beijing must loosen its reins in order to reap the rewards of private-sector provision of infrastructure by STEPHEN CHANDLER

“

Thrift should be the guiding principle

responsible for over 80% of total government

Plenum of the 18th Communist Party Cen-

in our government expenditure”, wrote

expenditure. To meet the shortfalls in fund-

tral Committee marks out this need clearly:

Chairman Mao in 1934 as he outlined his

ing, local governments have either relied on

“Private capital is also expected to take part

economic vision for a socialist China. Eighty years later, the wheel of China’s fiscal stance appears to have come full circle. In 2014, Beijing announced a strict imposition of limits to local government borrowing amidst growing concerns of a debt binge. Thrift indeed this may be. However, China’s twenty-first

in infrastructure investment and operation,

“Beijing has been clamping down on shady off balancesheet methods”

a boon for local governments with heavy funding burdens”. By 2015, the National Development and Reform Commission released a list of 80 projects in which the private sector could participate. In a public-private partnership, the govern-

century style thrift seems to have taken much more of a capitalist flavour than ever before

transfer payments from central government,

ment and a private party engage in a long-

and has given rise to an exciting phenome-

or have increased off balance-sheet borrow-

term contract to provide a public service or

non of state-market interaction: the Public

ing from the shadow banking sector, often

infrastructure. The management responsi-

Private Partnership (PPP).

with high rates of interest and short matur-

bility lies with the private party and funding

ities. These practices have resulted in a swell-

for the project is either shared or stumped

The PPP is certainly not a new concept and

ing of local government debt, the true size of

up solely by the private party. The success of

has been a feature of public policy in much

which can only be estimated at $3 trillion.

PPP’s in theory relies on the fact that the state

of the developed world, including the con-

However, many analysts predict it to be high-

can harness the efficiencies of the private

troversial PFIs (Private Finance Initiatives),

er, due to the opacity of much of the off bal-

sector powered by the profit motive, whilst

widely used in the construction of hospitals

ance-sheet shadow banking debt. Concerned

saving on the costs of the project, which are

and transport infrastructure in the United

by this burgeoning debt, Beijing has been

often borne by the private party. Why not just

Kingdom. Neither is it a new project in Chi-

clamping down on shady off balance-sheet

privatise a project and let the private sector

na, where the Shaoji Power plant in Shenzhen

methods, allowing local governments to

take care of the rest? Because of uncertain-

is considered to be the first PPP, operating

raise their own revenue by issuing bonds for

ty, which plays a very important role in the

in 1988. However, the current debt structure

the first time in 2014. A further debt-swap

decision to invest in a huge infrastructural

of local governments combined with grow-

programme was introduced in March 2015,

project. Few companies would be prepared to

ing infrastructural pressure puts China in a

allowing local government to turn 1 trillion

fork out the initial investment (it took close

unique position whereby centralised govern-

yuan (£108 billion) worth of high-yielding

to 735 million yuan to construct line 4 of

ment is, for the first time, encouraging the

debt into lower-yielding municipal bonds.

Beijing’s Subway) without the certainty of a

private sector to meet the country’s infra-

future return. The state, with its power and

structural needs. To understand why, we need

These measures, however, will not be enough

credibility, can eliminate this uncertainty by

to look at financing from the position of local

to help fund the long-term infrastructural

guaranteeing future purchase agreements at

government.

requirements of China, whose government is

a pre-determined price or guaranteeing sub-

aiming 60% of the population to be living in

sidies if future costs exceed revenue. For ex-

Since 1994, local governments have been for-

urban areas by 2020 (a target that will result

ample, the construction of line 6 of Beijing’s

bidden to borrow money directly, for exam-

in roughly 100 million new urban residents).

Subway system was a joint project between

ple by issuing new bonds or raising new tax-

By the Ministry of Finance’s own estimates,

the Hong-Kong based MTR Corporation and

es. Instead, taxes are introduced centrally and

providing basic infrastructure and public ser-

Beijing’s municipal government. The PPP

national revenues are divided between cen-

vices will cost at least 42 trillion yuan (£4.5

agreement guaranteed a minimum price of

tral and local governments, the latter being

trillion). Enter the private sector. The Third

2 yuan per ticket throughout the duration of

PAG E 2 7

R AT I O N A L E 2 0 1 5 - 1 6

the 30 year operating franchise and addition-

the infrastructural panacea that China once

of local governments’ finances, it contributes

al tariff top-ups to MTR Corp if costs exceed-

hoped for.

nothing to the country’s overall fiscal posi-

ed this price.

tion, and adds to the pot a host of corrupYet even private-sector involvement has been

tion-related costs including bribes between

Yet, in great irony, it is precisely the state’s

exaggerated. Under Chinese classification,

officials during the tender of a project.

power and strength in China that is its big-

and unlike most other countries, private par-

gest shortcoming. The Chinese state has, in

ticipation in Public Private Partnerships can

The recent need for Public Private Partner-

a sense, become too powerful to be trusted

include State-Owned Enterprises (SOEs).

ships has brought to light China’s recur-

by the private sector. In April 2015, a survey

Another survey carried out by China Confi-

rent problematic and reciprocally sceptical

carried out by China Confidential (a research

dential in 2015 revealed that at half of all PPP

conflict between state and market. Yet with

arm of the Financial Times) found that only

developments, the “private” partner was in

growth rate slowing to 7% this year, the lowest

42% of private companies that have invested in PPP projects would be willing to invest again. Why? Government interference and poor investor rights surface as the top two reasons for this reluctance. Simply, the Chinese state can decide to do what it wants, when it wants, to the peril of all in a PPP deal. The Ensen care home for the elderly

rate in six years, and with Beijing already hav-

“PPP has not become the infrastructural panacea that China once hoped for.”

in Changzhou is a pilot project designed to

ing injected a huge stimulus to boost output during the 2008 global slowdown, officials are realising the important role that a market has to play in future infrastructural needs. Yet in order for this to be effective, China must relinquish its tight grip on the private sector and divert these resources to improving a judicial system adequate enough to uphold

showcase how private investors can provide

contractual agreements. Legal constraints

a public service. Yet, just before opening, the

fact the state. Only 22% of projects actually

on local governments remain weak and are

city government decided to impose an ad hoc

had investment from a fully private compa-

often unenforced. PPP’s have the power to

advance tax, in order to top up its depleting

ny. This seems rather counterintuitive. How

remove so many of the inefficiencies that are

funds. In the southern city of Quanzhou, the

can the state enter into a contract with itself

currently visible in China’s public services.

Citong toll-bridge was built as a PPP project

to ensure that the profit motive can deliver

Yet as long as the private sector is never really

where tolls would generate revenue. Half-

cost-efficient projects? There is no answer.

in charge, these gains will be muted. Judicial

way through the contract period, the local

When taken from a broader perspective, the

independence will be necessary for China to

government built seven toll-free bridges

initial fiscal gain from having a private party

increase the confidence of private investors,

surrounding Citong, drastically diminishing

fund a project is completely lost. Infrastruc-

not just in Public Private Partnership proj-

its profitability. This disregard for investor

ture-related debt is simply shuffled in the

ects. Otherwise the future could hold real

rights, together with poor local financing

state’s books from local government debt to

thrift, one not seen since the founding of the

methods, has meant that PPP has not become

SOE debt. While this might improve the look

Republic under Mao.

PAG E 2 8

NEW PERSPECTIVES

Reducing Automobile Congestion Guiding transportation policy in Los Angeles by VAISHALI MULLAPUDI

armaggedon is coming. According to

ed to rise to 8.3 billion (47 per commuter) by

age to keep up with the rapid growth of the

the U.S. Department of Transporta-

2020. Not only are drivers wasting more than

late 1990s.

tion, Americans drove over 3 trillion miles in 2015. As the United States recovers from the Great Recession, GDP growth, increased investment, and employment growth have made people feel richer. Subsequently, Amer-

The product of this history can be seen most

“Carmaggedon is coming”

clearly in the state of L.A.’s public transportation today. Despite the fact that over 1.3 million Angelenos take the Metro bus and rail

icans have been splurging on cars and petrol,

every weekday, the network does not provide

resulting in increased gridlock and its asso-

access to crucial access points—there is no

ciated costs.

3 billion gallons of fuel, they are also falling

direct metro connection to LAX (Los Ange-

victim to high traffic fatality rates.

les International Airport) and the promised

Last year, congestion cost Americans $160

“Subway to the Sea” terminates nearly six

billion, according to the Urban Mobility

The city of Los Angeles experienced its most

miles from the ocean. The extra “15-minute”

Scorecard by the Texas A&M Transportation

rapid growth in the era of mass automobile

shuttle needed to get to LAX sticks passen-

Institute. Congestion causes aggregate eco-

ownership. In the United States in general,

gers right back in to the traffic they were try-

nomic loss from the fall in labour force pro-

the auto industry took off after World War II

ing to avoid. According to Slate, commuters’

ductivity, inflated transportation costs, and

with the building of interstate highways. In

dependence on mass transit is increasing

the carbon-equivalent cost of fumes. INRIX,

the 1950s, the Interstate Highway System got

more quickly (10.7%) than their dependence

a big data company that analyses road traffic,

substantial funding support, leading to the

on driving (3.6%). The city can fix this prob-

and the Centre for Economics and Business

construction of thousands of miles of high-

lem by taking advantage of its long straight

Research projects that this number will rise

ways. This turned the car into the preferred

boulevards which make it ideal for buses.

to $192 billion by 2020, due to population

mode of ground transportation. The High-

growth, GDP growth, falling fuel prices, and

way Trust Fund was created, relying on gas-

The importance of addressing the city’s trans-

a rise in car ownership. This is predicted to

oline taxes. This remains the main highway

portation problem cannot be ignored. Elim-

cause a 50% increase in gridlock in the Unit-

funding source to this day. The introduction

inating serious congestion could return $8

ed States.

of fuel efficient and electric cars has limited

for every $1 spent. Road building and other

the revenue collected from the gas tax. In the

related activities would create jobs primarily

This cost is distributed unevenly among dif-

summer of 2014, the Highway Trust Fund al-

in construction and manufacturing—two in-

ferent regions—the average cost per com-

most ran out of money.

dustries that were disproportionately affected

muter is $960, but this value skyrockets in

by the recession. A third of all carbon dioxide

Los Angeles where traffic costs residents

Unlike the extensive rail networks of Japan,

emissions, which are especially bad for chil-

$6,000 each, totalling $23 billion for the en-

Western Europe, the United Kingdom, Chi-

dren’s health, are from fossil fuel combustion

tire metropolitan area. Los Angeles has long

na, Turkey, Russia, and Iran, no bullet trains

caused by transportation. Mental and physi-

been famous for its car culture, but this rep-

or high-speed rail over long distances was

cal health effects, such as stress and neck and

utation comes at a cost - arguably the worst

built in the Western part of the United States.

back issues), should also be added to the list

traffic congestion in the country. According

In fact, over 1,100 miles of track were ripped

of problems caused by long commutes. Costs

to Forbes, Los Angeles accounts for nearly

up in Southern California in the 1960s to

of borrowing through the issuance of munic-

20% of the country’s congestion costs. South-

make way for car lanes. The train tracks that

ipal bonds are at historic lows. And, as bond

ern California drivers spent 80 hours each in

remained maintain a one-size-fits-all philos-

revenues are the primary source of infra-

traffic in 2014. Overall, they spent 6.9 billion

ophy, where the tracks are shared by freight,

structure finance at the state and local levels,

extra hours stuck in traffic—42 hours per

inter-city passengers, as well as commuters.

the city should act sooner rather than later.

rush hour commuter. This figure is project-

Transportation infrastructure did not manUnfortunately, Los Angeles faces quite a few

PAG E 2 9

R AT I O N A L E 2 0 1 5 - 1 6

obstacles to enhancing transportation in the

from different travel times, routes, and modes

Technology has a key role to play here. Con-

city. NIMBYism (NIMBY is short for ‘not in

of transportation. This explains the short-

gestion can be minimized through better

my backyard’) is rampant, with many local

term results of new highways lanes, but the

data—with traffic being managed like the In-

communities opposing the construction of

long-term return to equilibrium. Congestion

ternet. L.A. has already taken the initiative on

new or expanded roads in their neighbour-

pricing may be the only long-term solution.

this by implementing the Automated Traffic

hoods for social, health, or environmental

Surveillance and Control System (ATSAC),

reasons. There is very little space to add more

Singapore’s Electronic Road Pricing (ERP)

controlling and syncing all of the traffic lights

road capacity in areas where congestion is the

program varies the prices based on traffic

in the city to fight traffic jams. The next step

most, and it must be noted that L.A.’s road

conditions and by vehicle type, time, and

would be to incorporate dynamic traffic sig-

network is already the most extensive in the

location. A cash card is inserted into the on-

nal timing to take specific sporting events or

nation. Finding the money to fund this con-

board unit, and the ERP charge is deducted

concerts into account.

"Technology has a key role to play here"

ABI Research finds that 80% of cars on the road in the U.S. and Western Europe will be connected and a source of real-time data by 2017. Denmark has already taken advan-

struction is yet another obstacle. The local government has been struggling with raising

automatically when entering Singapore’s

tage of this to alert drivers of traffic jams in

the sales tax to 9% in the city to fund their

business centre and using the expressways

real-time and provide re-routing options.

transportation infrastructure plans. L.A.’s

leading into the city. The system is revised

INRIX has begun launching its On-Street

Mobility Plan 2035 plans to build hundreds

quarterly to ensure optimal use of road space

Parking Solution in upcoming BMW models

of miles of new bicycle and bus-only lanes. It

and to maintain optimal speeds. There was

to reduce time spent looking for a parking

also lays out the building of more roads and

an almost immediate 45% reduction in traffic

space; 30% of all urban traffic is caused by

widening existing ones to encourage more

and 25% decline in vehicle crashes, and av-

drivers looking for parking.

cars on the road.

erage travel speeds increased from 11 miles per hour to 21. Reduced traffic has led to a

L.A. should consider these and more, such

Even if seemingly relevant and beneficial leg-

176,400 pound reduction in CO2 emissions.

as dynamic high-occupancy vehicle lanes,

islation is passed, congestion-reducing strat-

The ERP program cost $125 million and nets

and congestion-based pricing—where road

egies often don’t work in the long run. Trav-

$40 million in annual profits; the system has

users are charged for traveling at peak hours.

elers who have altered their routes to avoid

already paid for itself. The revenue is then

Other technological changes that may affect

congestion will notice the improvements and

used to construct and maintain roads and

the flow of traffic include ridesharing services

return to the previously busy routes during

public transportation. This could be the per-

(Uber Pool and Lyft Line) and the future of

peak hours. This phenomenon is referred to

fect solution to Los Angeles’s double bind of

self-driving and electric cars.

as triple convergence, where commuters shift

crumbling infrastructure and budget deficits.

Good Fences Make Poor Neighbours Can the international tax system be saved? by BENJAMIN AW

oo often it is the case that the road to

the back for a job well done, its officials were

argue that the work on six years of audits by

hell is paved with good intentions. Cer-

getting blasted for making a “sweetheart deal”

HMRC has not been undermined as a result

tainly, Her Majesty’s Revenue and Customs

with the devil, and before long, segments of

of the negative press. So how did this belief

(HMRC) found that out for itself in January,

the public were calling for more blood on

that Google has been avoiding taxes in the

when it gleefully announced the fruits of its

the world’s largest company by market cap-

UK come about?

labour: the payment of £130 million in back

italisation. Regardless of whether the criti-

taxes by Google’s subsidiary in the UK. Be-

cism - that the deal was too little and came

One reason is that the media has been play-

fore the tax administration could pat itself on

too late - was justified, it would be difficult to

ing up the difference between the tax paid

PAG E 3 0

NEW PERSPECTIVES

by Google and the revenue it received in

have argued we should be paying much more

controlled in tax-free Bermuda (this tech-

the UK. If a company is successful, should

tax given the sales we make in the UK. But

nique is known as the “double Irish with a

it not be paying a greater contribution to the

that is just not how the tax system works.” Mr

Dutch sandwich”). These sophisticated tech-

public finance system to benefit the public?

Brittin’s defence would probably have placat-

niques have the added benefits of being, once

“the media has been playing up the difference between the tax paid by Google and the revenue it received in the UK” Apparently not. For example, in 2012, Goo-

ed the public if not for the fact that Ireland

again, fully legal, and out of reach of the vast

gle UK reported £396 million in revenue,

and other low-tax jurisdictions have been at

majority of smaller companies and individu-

an accounting profit of £31 million, and yet

the forefront of Google’s “tax strategy” for the

als, and these taxpayers, sensing inequality,

a corporation tax receipt of just £6 million.

last decade or so.

naturally cry foul as a result.

ations had generated £4.9 billion in revenue,

Another reason behind the public’s outrage

Governments, especially those running bud-

all of which went to Google Ireland, which

is that Google has quite evidently made ex-

get deficits, find it a politically safe and ex-

then paid Google UK for intercompany ser-

cellent use of the tools of the international

pedient tool to blame them publicly, while

vices provided. Given that Ireland’s corpo-

financial system to minimise its tax pay-

recognising the need to attract their invest-

ration tax rate was far lower than that of the

ments. These loopholes appear to be obeying

ments in their jurisdiction. This dilemma is

UK then, all of this was perfectly legal. This

the letter of the law, even if they may not be

probably what underscores the newly-intro-

mismatch was thus quickly interpreted as an

obeying in spirit. Among other things, it has

duced Diverted Profits Tax (also known as

accounting sleight-of-hand.

transferred most of its intellectual property

the “Google Tax”, for obvious reasons) in the

It was later revealed that Google’s UK oper-

rights in Europe to Ireland and other low-tax

UK, a 25% charge on profits diverted due to

Such a view may prove to be relatively sim-

jurisdictions, even if these rights did not orig-

“transactions lacking economic substance”,

plistic, considering that general rules for cor-

inate from these places. This has given Goo-

which, unfortunately for the HMRC, were de-

porate tax both domestically and internation-

gle two major advantages over the taxman in

fined very broadly. Most peculiarly, given the

ally attribute profit to where economic value

Britain. First, because these economic assets

HMRC’s lack of information, it requires com-

is added, and not to where sales are made. “As

are in a low-tax jurisdiction, it could ascribe

panies with operations in the UK to admit

much as I would like Google to have been

its generation of economic value to this juris-

to having made these “diverted profits”, and

created here in Britain, the fact is that Goo-

diction and hence pay lower corporate taxes

then justify that the actual amount of these

gle is a US company,” lamented Matt Brittin,

overall. Second, until very recently, Irish tax

profits is not higher than what was declared

Google’s head of EMEA business and opera-

law made it possible for Google to slash its

originally. A law meant to patch up loopholes

tions, in defence of this mismatch. Pointing

tax incidence in Ireland by paying its revenue

will be ineffective if it is also riddled with

out that Google bears the most investment

received as “royalties” to a subsidiary in the

loopholes; indeed, if any of the policymakers

risk in the US (curiously, he did not mention

Netherlands, which then pays them to an-

thought of it as a panacea to tax avoidance,

Ireland), he added, “Some here in Britain

other subsidiary incorporated in Ireland but

their hopes might have evaporated when Paul

UK corporation tax rates, 2006 - 2015 Source: tradingeconomics.com, HM Revenue & Customs PAG E 3 1

R AT I O N A L E 2 0 1 5 - 1 6

Johnson, director of the Institute of Fiscal

ent jurisdictions. Suppose there is a multina-

multinational corporations cannot hide their

Studies, criticised it as “introduced before it

tional corporation that has dealings in three

economic profits for long, the Organisation

has been fully thought through”.

different jurisdictions: A, B, and C. Jurisdic-

for Economic Co-operation and Develop-

tion A is where the company is legally estab-

ment (OECD) has developed a Common

It is clear that the international tax system to-

lished and where all its shareholders reside.

Reporting Standard (CRS) for tax admin-

day is in a sorry state. Legislatures and tax ad-

Jurisdiction B is where the company produc-

istrations in most of the developed world

ministrations across the world have not been

es all its products, all of which it exports to

to exchange information automatically and

able to keep up with the pace of globalization

jurisdiction C. Jurisdiction C is where the

systematically, with the aim of uncovering

that has enabled an increasing number of

company sells all its products, all of which

tax evasion. This is complemented by more

multinational companies to move and hide

are consumed within said jurisdiction. If this

general “anti-abuse rules”, which member

their profits in some corner of the globe. How

company were to make profits, in which ju-

states can incorporate into their legislation

might this system be reformed?

risdiction should it be taxed?

to target the most common tricks used by

Some insight might be provided within the

If we think of taxes as payments to the gov-

standard mainstream economic literature on

ploiting the intangibility of intellectual prop-

ernment in exchange for the benefits enjoyed

tax evasion, as pioneered by Allingham and

erty as described above. These plans have yet

under that jurisdiction, then all three juris-

Sandmo in their 1972 paper. Simply put, their

to be fully implemented (the CRS only kicks

dictions can make an economically legitimate

model suggests that a decrease in tax eva-

in two years from now), so it remains to be

claim to this, and they use different means of

sion will result from a decrease in tax rates

seen whether they will have a substantial im-

taxation to do so. If all three jurisdictions

if and only if the substitution effect, which

pact, if at all.

only had personal income taxes, then the

causes the taxpayer to not cheat or to cheat

only taxes paid would be those on the divi-

While ambitious, the solutions of the OECD

less because the marginal benefit of cheating

dend payments of shareholders in jurisdic-

may still be unable to keep up with advanc-

is lower, is greater than the income effect,

tion A. Likewise, if all three jurisdictions only

es in the international financial system or

which causes the taxpayer to be better-off

had corporate income taxes, then the only

the creative ideas of tax consultants across

and thus more willing to cheat (assuming

taxes paid would be those on the profits of the

the world. Perhaps a more radical solution

that he/she has decreasing absolute risk aver-

subsidiary in jurisdiction B, where the com-

would be to have a global administration in

multinational corporations, such as those ex-

sion). According to Mr Sandmo in 2005, this finding appears to be supported by empirical evidence insofar as personal income taxes are concerned. However, even as we see more

“It is clear that the international tax system today is in a sorry state.”

and more of the developed world lower corporation tax rates (the UK lowered its rate

pany “created” its economic value (assuming

charge of taxation of selected multinational

from 30% in 2008 to 20% in 2015), it remains

jurisdiction A does not tax profits from for-

companies deemed large enough, made up

to be seen whether the model’s prediction can

eign sources). Finally, if all three jurisdictions

of representatives from tax administrations

be extrapolated to explain corporate taxation.

only had value added taxes, then the only

of the jurisdictions these companies have

Crocker and Slemrod, in their 2003 paper,

taxes paid would be those on the consump-

legal establishment, production, and/or sales

point out that the difficulty in extending the

tion of the goods in jurisdiction C. If these

in. Together, these representatives can take a

model arises from the separation of owner-

jurisdictions are identical to one another

bird’s eye view of the operations of multina-

ship and control. As managers are not direct-

save for their tax rates, then the company can

tional corporation, and apportion its profits

ly penalised by their choice of the amount

simply choose to relocate its places of legal

based on where economic value is added, and

of taxes to evade, it is possible that they may

establishment, production, or sale where the

these companies would pay a single tax bill

choose to evade more taxes as a result.

respective tax rates are the lowest. In an era

to this administration. Rather than watching

when taxation is regarded by governments to

administrators in France (and possibly more

be a largely domestic matter, the fundamen-

jurisdictions to come) demanding more than

tal problem hence arises when governments

€500 million from Google for the same rea-

cannot find grounds of agreement in what to

sons as the UK did, or the US and the EU tus-

tax and how much to tax it.

sle with each other over who is treating each

The bigger (and more insidious) problem in the international tax system, however, is the still-legal act of tax avoidance, precisely because it is “the thickness of a prison wall” that differentiates between this and its illegal

other’s companies more unfairly, if the inter-

cousin tax evasion. Tax avoidance results be-

Already, inter-governmental organisations

cause companies can take advantage of the

national tax system is to be saved, govern-

have made advances towards a solution to

heterogeneity in legal systems across differ-

ments need to stand together, more than ever.

this. Focusing on the need to ensure that

PAG E 3 2

SECTORAL POLICIES

SECTORAL POLICIES PAG E 3 3

R AT I O N A L E 2 0 1 5 - 1 6

Greetings Earthlings! Creating sensible antitrust policy for internet search by JAUME VIVES

‘G

reetings earthlings!’ This is how Rob-

advertisement through a search engine. That

an auction in Google AdWords. Hal Varian,

ert Shrimsley, Managing Editor of

is, access to an ordered set of users that can

Emeritus Professor at Berkeley and Google’s

the Financial Times, imagines a letter from

see your ad when searching for results in the

Chief Economist, designs such auctions such

the tech world leaders to the rest of ‘mortals’

network. The key is that consumer choice

that the price paid (the winning bid) for the

would begin. The ironic piece aspires to high-

lies in which platform/network to choose to

top position also depends on other factors

light the main issues concerning the meteoric

advertise its business or website. There are

such as ad quality or expected impact of ex-

rise of the internet giants. From tax efficiency

other, significantly smaller networks that

tensions. Not only does the bid matter, but

to competition policy, it seems that the main

provide similar services; Bing, Yahoo, Baidu

also the value added of the website to the

debate is whether such considerations can be

etc. Google’s market power comes from the

network of users (Google quantifies these

overlooked in the face of a commitment to

fact that Google’s product is differentiated

value added by investigating why users use

improve and advance society through inno-

from the others. Mostly because of the size

your website, what your website offers and

vation and technological progress. Is Google’s

of Google’s network of users; the more us-

so on). This system introduces a form of

"Is Google’s added value to society enough to justify the suspension of the competition laws that apply to most markets?" added value to society enough to justify the

ers the network has, the larger the benefit

quality control that helps users sort through

suspension of the competition laws that apply

for each user when using the network. Also,

the information more easily. So the fact that

to most markets? In this article I review the

the underlying algorithm of Google’s engine

Google can set higher prices is not intrinsi-

components of industrial economics which

is seen as more efficient and better suited for

cally a flaw in competition policy. Since the

influence competition law, to try to under-

the type of results users are looking for when

auction process is repeated for every search

stand if a monopoly in the internet search

using a search engine. This allows Google to

position, each independent auction can have

industry is detrimental or beneficial for so-

set the price schedule of ads knowing that

potentially different results depending on the

ciety. The two issues to analyse are whether

its competitors will be heavily influenced

intensity of competition at the moment. Oth-

Google’s behaviour in the search industry

by its decision and that the demand for ads

er search engines operate with similar meth-

distorts competition and how the existence of

won’t change significantly. It is reasonable to

ods and therefore whether there is a market

a monopoly affects this market.

assume that the demand for using Google’s

leader or not doesn’t influence the price of

network is fairly independent (inelastic) of

the ‘good’ in a restrictive manner. One might

It is clear that Google is a dominant player in

the price of ads because consumers choose

think that this is not true because Google’s

the search industry with around 65% of the

Google having in mind the benefit of gaining

competitors are only able to attract the firms

global market share and up to 92% for the EU

access to the largest network of users.

that did not get their desired search spot in

(according to Net Market Share analytics).

Google’s search process, as Google is seen as

However, legal cases against Google usually

However, this doesn’t seem to be a problem

the market leader. However, it is likely that

are not concerned with competition in the

that concerns policy makers. Mostly, because

this distortion (smaller, less resourceful firms

search market. From a microeconomic lens,

Google prices its advertisements according

not being able to bid in Google’s system) is

it is tempting to think that since Google has

to auctions. Imagine that there is a web-

overtaken by the fact that having a subopti-

a large share of the market, it also has a lot of

site that rates restaurants in London. Every

mal spot in Google’s search engine might still

market power and so can distort the prices.

restaurateur wants their restaurant to be the

be marginally better than having the best spot

But, how does one interpret market power

topmost result when a person searches for

in a competitor’s engine. As a result, the or-

and make inferences about it in such an in-

‘Restaurants in London’ in Google. In order

dering of sites in Google (if no further distor-

dustry? The service provided by Google is

to bid for this place, the restaurateurs enter

tions are considered) is likely to be reflective

PAG E 3 4

SECTORAL POLICIES

of the productivity and significance of the

by restricting competition. Imagine once

Google shopping is still a small player in the

bidders, which is what users are looking for

again that you bid for the first spot with your

market and is not growing very fast. Either it

when using the engine.

restaurant website and you pay what usual-

hasn’t reached the necessary critical mass of

ly would get you the first spot, but instead

users or the fact that it is ranked first doesn’t

Despite this, the EU is fighting an open legal

the Google Restaurants website (fictitious)

matter that much as users would rather go

battle against Google over antitrust concerns

appears first. Consequently, your user base

to eBay or Amazon to buy goods. These dis-

since 2010. The European Competition Au-

drops by a small amount as consumers shift to

tortions seem small at the moment and don’t

thority claims that Google is being unfair by

Google Restaurants. If this drop is significant

seem to create a significant adverse environ-

biasing its searches towards its own products;

enough, you might be forced to raise prices

ment for competition. However, in the future,

some Google products are not ranked ac-

to maintain the revenue or cut some of the

this might change, and when it does the cost

cording to the auction mechanisms. Specifi-

services offered. The costs haven’t changed,

of regulating competition within Google’s

cally, Google Shopping has been consistently

but if you hike prices or cut quality, then your

network will increase significantly.

favoured although competitors such as Am-

perceived value added to the network drops

azon or eBay should be ranked higher due to their larger user base. If these claims are true, then the market for ads that Google administrates within its network is not fair. Since the quality controls are dynamic, a

“If these claims are true, then the market for ads that Google administrates within its network is not fair”

Given that Google can create these sort of distortions in the markets it participates in, we assess the value added to an economy by Google. Google’s Economic Impact report for the US in 2014 claims that it helped

website that consistently ranks in the top spot

and hence you might need to pay more to re-

provide $131 billion, equivalent to the GDP

for a specific search is more likely to be able

tain this second spot. So, Google’s distortion

of Hungary, for business, website publishers

to bid lower prices for such a position. Essen-

of the market is clearly reducing your ability

and non-profit organisations in 2014. More

tially, the ranking is self-enforcing in quality.

to compete with Google’s prices and services

interestingly, they estimate that for each $1

A higher quality site ranked number 1 for a

in the restaurant market. This is where the is-

spent on Google AdWords, a business gen-

certain search criterion will have to pay less

sue with competition lies. Google might not

erates $2 in revenue, and businesses receive

to maintain its ranking and so might be able

be unfair in the search industry as a whole,

on average 5 clicks on their search results for

to spend more on consumer satisfaction or

but such practices in the markets within

every 1 click on their ads. That is, if search

amplifying its user base. This allows the site

Google’s network grant Google the ability to

clicks brought in as much revenue as ad clicks

to reinforce some of the aspects that Google

set more competitive prices and hence gain

then businesses would effectively be making

takes into account in the auction process,

market share. In practice, we could ask our-

a profit of $11 on average for each $1 spent

and, therefore, gives the site a comparative

selves, what happens when the rank is biased

on Google AdWords. This return seems in-

advantage. This can be understood as Google

towards certain websites owned by Google?

credible, but we have to keep in mind that

effectively distorting incentives in its market

As a matter of fact, not that much happens.

presence on Google is more or less a require-

PAG E 3 5

R AT I O N A L E 2 0 1 5 - 1 6

ment for most businesses if they don’t want

sumers. Another very important part of Goo-

creator and a nightmare for unexperienced

to lose market share. The most important fact

gle is the so called “moonshots”; there exist

regulators. The patent system needs to devel-

about Google is that it unifies the process of

black swans and there exist moonshots. In the

op a very clear set of guidelines to prevent fu-

gathering and displaying information. Were

same way that we tend to underestimate the

ture competition issues in these new markets.

we in a more competitive environment in

gravity of events that only happen with very

the search industry, there would be an add-

small probabilities, we tend to optimistical-

In order to have a healthier digital market,

ed cost to selecting between search engines

ly magnify the probability of events that we

regulators have to work towards two goals.

without necessarily knowing which busi-

believe would have an incredible impact on

One is to ensure that the allocation mech-

nesses are in each network. In the perfectly

the world. Such discussions are common in

anisms within search engines are fair and

competitive case, if all networks are exactly

the media. Many large tech companies invest

don’t distort incentives. The second is that

the same, then it means that businesses have

billions in research that has no direct applica-

new legislation has to be set in order to have

to pay to be in every network, otherwise there

tion currently, but might someday transform

a general rule-book specifying protocols in

would be some preferred networks and we

the world we live in. I am talking about ar-

case Google creates a new market within its

wouldn’t have perfect competition anymore.

tificial intelligence, space tourism… - all of

own network. It cannot be disputed that these

So, it seems that the fact that Google is the

which seems good for society. At the end of

internet giants provide very useful services,

most widely used browser is beneficial for

the day, if large multinationals don’t invest in

but this doesn’t mean that efficiency in these

consumers as it reduces search costs and for

this kind of research who is going to do so?

markets cannot be increased. It does mean,

businesses as it reduces the costs of having

However, what happens if such a moonshot

however, that in doing so we might have to

to be in multiple networks, and so facilitates

becomes a reality? A new market will have

change the way these markets allocate ser-

transactions between businesses and con-

been created, granting monopoly power to its

vices within the user base.

Seven Years of Change An economic analysis of US President Obama’s sustainability initiatives by CHRIS CURFMAN

ver the past few years, there has been a

reau of Economic Analysis). Thus, the true

of the program that CO2 emissions fell by 8.58

heavy policy focus on innovation and

policy debate is over the period from 2009 to

million tons to a total of 28.28 million tons, or

sustainability as countries have begun to re-

2014, over which changes in emissions have

0.1-0.5% of current US CO2 emissions. This

alize their old models of growth will fail to

been a net wash.

amounts to between 2.4 to 7.9 days’ worth of

be as effective in the 21st century. Composing

current U.S. gasoline consumption. Ted Gay-

roughly 20% of world GDP and 15% of glob-

One of the first programs introduced during

er and Emily Parker also note in their own

al greenhouse gas emissions, the policies of

the Obama administration was the cash-for-

research that the price tag associated with the

the United States in these areas have a large

clunkers program (also known as the Car

program totals $3 billion, or $91 to $301 per

impact not only domestically, but abroad as

Allowance Rebate System (CARS)). This

ton. This is an inefficient use of fiscal resourc-

well. For these reasons, as he enters his eighth

program allows consumers to trade in older,

es when federal agencies estimate the social

and final year in office, there is a collective in-

less fuel-efficient vehicles for vouchers to be applied toward the purchase of newer, more

cost of CO2 emissions at $38 per ton.

terest in evaluating the policies of U.S. President Barack Obama on their effectiveness in

fuel-efficient transportation. Meanwhile, the

Another area of focus over the past eight

promoting environmental sustainability.

traded-in older models were destroyed to

years has been electricity generation. Jayant

prevent resale. From a sustainability point-of-

Kairam of the Environmental Defense Fund

As can be seen in the adjacent chart, CO2

view, by increasing the fuel efficiency of cars

(EDF) says the United States’ “electricity sys-

emissions began falling in 2007 before Pres-

on the road, CO2 emissions should fall. This

tem accounts for 40 percent of carbon emis-

ident Obama was elected in 2008 and as-

is exactly what the program accomplished,

sions, and we have the opportunity to make

sumed office in 2009. This fall in emissions

albeit not on the scale for which the admin-

it cleaner, more resilient, more affordable,

corresponds to a contraction in economic

istration had hoped. Shanjun Li, Joshua Linn,

and less reliant on fossil fuels.” With this in

output of 4.2% from Q4 2007 to Q2 2009 (Bu-

and Elisheba Spiller found in their evaluation

mind, the American Recovery and Reinvest-

PAG E 3 6

SECTORAL POLICIES

ment Act (ARRA) of 2009 was introduced in

the state RPS they would have reduced CO2

(SO2– causes acid rain), and nitrogen dioxide

the same stimulus package as CARS. ARRA

emissions by 0.5%. From this, we conclude

(NO2) emissions. The use of cap-and-trade

were a series of production and investment

that there was a fair amount of redundancies

to limit CO2 emissions has largely been con-

tax credits for renewable energy production.

produced by the ARRA. This study also ex-

fined to the EU, South Korea, New Zealand,

These tax credits were designed to increase

amined another series of tax credits created

and California. A 2009 US effort to implement an ETS for CO2 emissions, the American Clean Energy and Security Act (H.R. 2454), passed the House of Representatives but died in the Senate. Gayer and Parker estimate the cost per ton of CO2 reduced would have been $14.95 under the cap-and-trade bill, making it far more efficient than any subsidies or even a carbon tax. For this reason, economists continue to advocate for an ETS. In the US, however, cap-and-trade programs remain a far-fetched political dream, in spite of their efficiency and effectiveness in reduc-

Source: U.S. Energy Information Administration, Monthly Energy Review

ing carbon emissions.

clean energy output by decreasing the cost

in this legislation for renewable transpor-

This raises the question, at what point do

of production and encouraging companies to

tation fuels. They found that the credits ac-

economists stop advocating for first-best,

undertake investment that otherwise would

tually increased emissions by lowering the

efficient methods of emissions reduction

not have been profitable. Last year, the U.S.

price enough that the costs from increased

and use their skills to improve upon second

Energy Department reported that from 2008

consumption outweighed the benefits from

or third-best solutions? For instance, im-

to 2015, the amount of power provided by

blending renewable fuels with gasoline/diesel

proving clean energy subsidies by helping

wind in the US tripled and the amount from

fuel.

the government tailor them to geographical areas where renewable energy is unlikely to

solar grew 20 fold. The Energy Information Administration notes the US now consumes

There is little doubt among economists that

take hold, or designing a provision that al-

22% of global non-hydroelectric, renewable

emissions taxes (i.e. Pigouvian taxes) or an

lows companies to claim a tax break if they

energy.

emissions-trading scheme (ETS or “cap-and-

reduce emissions by a certain amount. Since

trade”) would be much more efficient and

it is usually difficult to change existing pol-

It is likely these tax credits played a role in

effective at reducing emissions than subsi-

icies or introduce wholesale new regulation,

the dramatic increase in solar and wind pow-

dizing renewable electricity production. By

another second-best solution is developing

er production over the last seven years, but

allowing electricity generating firms to utilize

efficiency improvements for existing systems.

at what cost? A National Academy of Scienc-

the most efficient means of emissions reduc-

The Congressional Budget Office, a non-par-

es (NAS) study published in the American

tion, these market-level methods achieve

tisan entity working for the U.S. Congress,

Economic Review tried estimating this cost and found these tax credits reduced CO2 emissions at an average cost of $250 per ton. The NAS study found that the high cost of reduction was mainly due to the substantial level of funding provided by the credits, and the fact that 29 states and the District of Co-

“It is likely these tax credits played a role in the dramatic increase in solar and wind power production over the last seven years”

lumbia had already set Renewable Portfolio Standards (RPS). These standards require a

their goal while minimizing the negative im-

found that the Department of Energy fund-

certain percentage of participants’ electricity

pact on GDP. In fact, as Harvard economist

ing and research for early-stage technological

output be produced from renewable sources

Robert Stavins notes, the US has undertaken

developments produced economic benefits

by a certain date. The authors estimate that

ETSs several times in the past to reduce lead-

substantially outweighing their initial costs.

ultimately the tax credits only reduced CO2

ed-gasoline, chlorofluorocarbons (CFCs) and

Several such programs have been implement-

emissions by 0.3%, but in the absence of

halons (ozone destroyers), sulphur dioxide

ed under the Obama administration, likely

PAG E 3 7

R AT I O N A L E 2 0 1 5 - 1 6

ready decreased CO2 output from coal-fired electricity by 77%. By investing in early-stage, clean coal technologies, the government has an opportunity to make a meaningful reduction in emissions from an area that is, for all intents and purposes, politically untouchable in the US Congress. It is neither fair nor reasonable to judge the current administrationâ&#x20AC;&#x2122;s environmental polSource: U.S. Energy Information Administration / Monthly Energy Review January 2016

icies on their failure to implement the most economically efficient solutions of reducing

contributing to the 80% fall in the price of so-

a perverse side-effect of the rapid increase

US emissions. While many of their envi-

lar panels, 90% fall in the price of LEDs, and

in clean energy production in Germany, and

ronmental programs were not cost-effective,

40% fall in wind and battery prices. During

the corresponding low cost of production

they did reduce emissions, and the adminis-

austerity regimes, solutions such as these can

and generous energy subsidies, has result-

tration deserves credit for investing money in

provide governments better value for their

ed in an increase of coal-fired power plants.

research areas that could produce emissions

money while reducing both domestic and

As it turns out, coal is the only type of fossil

savings down the road. There are, however,

foreign emissions (assuming the technology

fuel able to compete with the very low mar-

less-glamorous and politically palpable areas

travels). They can also generate technological

ginal cost of solar and wind power. Similar-

of efficiency and sustainability improvement

spillovers, which help other areas of the econ-

ly, beginning in 2012 the US saw an uptick

that appear to have been neglected over the

omy tangentially related to that of the technological innovation. Another great example of an alternative solution is clean coal technology. Contributing almost 80% more emissions than natural gas

â&#x20AC;&#x153;Another great example of an alternative solution is clean coal technology.â&#x20AC;?

and accounting for 77% of US CO2 emissions from electricity generation, many environ-

in electricity from coal and a downtick in

mentalists find the idea of investing more

electricity from natural gas, coinciding with

last eight years. It is these areas in which the

money into coal-fired power distasteful.

an increase in renewable energy production.

next administration should consider invest-

Still, coal remains the cheapest source of fos-

The Environmental Protection Agency (EPA)

ing, and for which economists should be ad-

sil fuel energy, accounting for 41% of world

estimates clean coal technologies have al-

vocating.

power production. As The Economist notes,

PAG E 3 8

SECTORAL POLICIES

So Far So Good Review of the progress of the German energy revolution by MARTIN KABRT

“G

rowth and Prosperity Without Oil

German deep and widespread anti-nuclear

primary energy consumption should halve

and Uranium,” read the subtitle

sentiments, the notion of Energiewende is

between 2008 and 2050.

to a 1980 study by the German Institute for

now mostly used to refer to the ambitious

Applied Ecology. This influential publication,

plan of the then conservative-liberal coalition

By comparison, the common EU targets,

reflecting the era’s arisen awareness of envi-

government, introduced in 2011. The policy

already considered very bold by global stan-

ronmental impact of human activity, argued

should bring a radical shift in energy supply

dards, only prescribe 40% emissions reduc-

that economic growth is compatible with

away from nuclear and fossil fuels towards a

tion, 27% share of renewables and 27% reduction in energy consumption by 2030. It comes as little surprise then that the German

“The policy should bring a radical shift in energy supply away from nuclear and fossil fuels”

plan is widely seen as unrealistic or even outright ludicrous. Nevertheless, under Angela Merkel’s leadership, the government continues to silence the critics by, for the most part, meeting the self-imposed deadlines. Since 2000, the renewable share of all electricity

lower energy consumption and a transition to

system characterised by energy efficiency and

consumed climbed from 6% to 28%; energy

renewable energy resources. Thirty-five years

the use of renewables. The main pillars of the

consumption is at its lowest level since the

later, these two objectives constitute the foun-

strategy are a complete phase-out of nuclear

German reunification and nuclear reactors

dation of Germany’s largest infrastructural

from the energy mix by 2022 and a gradual

are being steadily taken off the grid. The

project since the Second World War. The ti-

reduction in greenhouse gas emissions by

country stays on track in all areas except the

tle of the 1980 study even gave the policy a

40% (of 1990 levels) by 2020 and 80-95%

emissions target.

name: Energiewende, energy transition.

by 2050. The missing capacity should be replaced primarily with solar and wind power,

Though rooted in a long pedigree of con-

so that the share of renewables in total power

servation movements, energy efficiency ini-

generation is 55-60% by 2035 and as much

tiatives, schemes to support renewables and

as 80% by 2050. In parallel to this process,

PAG E 3 9

Energiewende has a broad support of the public and of all major political parties. It is viewed as a solution that discharges Germany from the safety and security risks of

R AT I O N A L E 2 0 1 5 - 1 6

nuclear power plants, while at the same time

phase-out inevitably led to a return to coal

(relative to coal) low carbon emitting fuel

combats climate change, provides long-term

(which would explain why the emissions tar-

– uncompetitive. The idea that coal and lig-

sustainability and reduces the country’s de-

get is the one that seems elusive). Second, it is

nite are somehow on the rise in Germany,

pendence on geopolitically risky regions.

claimed that electricity prices, high due to the

however, seems grossly overstated at best.

The strategy raises controversy, however, on

green subsidies, represent a heavy financial

According to a study by Poyry consultancy

the academic soil and among businesses.

burden for households and threaten interna-

commissioned by the UK government, the

Critics point to the exorbitant costs – north

tional competitiveness of businesses.

increase in coal consumption and openings

of 1 trillion euros according to government estimates, comparable in Germany’s recent history only with the cost of the country’s reunification in 1990s. This bill, covering mostly infrastructure costs and green subsidies, is ultimately footed by households and firms through higher end-customer electrici-

of new coal-powered plants did not signal Green or Brown Germany? A simple look at the shares of energy sources used in Germany’s electricity generation shows that the rapid increase in the production of renewable energy just about suffices to

a return to fossil fuels, but rather originated from unique market conditions in 2007/8 (when the projects for the new plants were created) and the reluctance or inability of developers to cancel projects after major unfavourable changes. The building of all new

“the price that the most energy-intensive German businesses pay for electricity is still one of the highest in Europe” ty prices. Further criticisms, championed for example by the German celebrity economist Sinn, include harmful incentive distortions by subsidising renewables, frictions with the European trade in emission allowances or the negative impact on neighbouring countries (e.g. through driving down wholesale power prices). Proponents of the policy, on the other hand, maintain that in the long-run the energy transition is cheaper than continued reliance on conventional fuels. A recent study by the research institute Frauenhofer estimates that by 2030 the benefits will have already outweighed the costs. A range of government-commissioned publications also find

balance the drastic drop in the use of nuclear power. The shares of coal and lignite have not significantly changed since 2010. If nuclear is to be out entirely by 2022, one can only expect this trend to continue. Since 2011, when Germany took 8 oldest reactors off the grid in response to the Fukushima disaster, the country’s carbon emissions have not decreased until 2014 and Germany will most likely not meet its target for a 40% reduction by 2020 (now about 27%). In fact, the consumption of coal slightly increased between 2012 and 2013 and moreover, new thermal power stations were opened and still other are being built. It is easy to see how these facts

the policy will lead to net job creation.

could lead one to suspect there is a trade-off

The vast scale of Energiewende and its status

a carbon-free energy mix. Phasing out nu-

of a never before tested experiment under-

clear, it is often argued, has led Germany to

standably invite ample amounts of research

increased dependence on fossil fuels.

on the possible effects and a heated debate on the desirability of any of its parts – for example, there seems to be far less consensus internationally on the need to limit the use of uranium than to curb carbon emissions. My ambition in the rest of the article is humbler. I want to briefly assess two claims frequently made about the effects the policy has already had. First, it is often claimed that the nuclear

between commitment to a nuclear-free and

To a certain extent, this is true. Despite its swift rise to prominence, renewable energy could not at the same time replace both fossils and nuclear fuel and in this sense, the energy transition is slower than the policy makers hoped. It is also true that the priority status of renewables on wholesale markets and their downward push on spot electricity prices have made gas – the expensive, but

PAG E 4 0

thermal power stations began before 2011 and since the introduction of Energiewende, no new construction started. On the contrary – a lot of projects were scrapped. The rise in coal consumption in 2012-13 was a consequence of the post-crisis positive turn in business cycle and the decrease in relative coal price following the shale revolution in the US. (The US turned to cheap shale gas, exporting its coal surpluses to Europe and thus driving down the European coal price.) In the same year, carbon emissions increased even in France or the US. In fact, the increasing capital costs, powerful local and environmental opposition, state support of renewables, low wholesale electricity prices and the expectation of an increase in the price of emission allowances make an investment in coal-powered plants very unattractive. Since 2007, four projects on lignite-powered plants were put on hold and 22 cancelled. Rather than becoming an attractive investment, fossil fuels have become a necessary part of the system, supplementing weather-dependent renewables and waiting to be to a large extent replaced as well. An expensive experiment As a result of the combination of colossal in-

SECTORAL POLICIES

vestment in renewable power generation and

than in for example the UK or Italy. Partially

tirely due to the EEG surcharge, with its share

stagnant consumption, wholesale electricity

in response to this worry, Germany recently

of the total price increasing from 1% in 2000

prices in Germany are among the lowest in

reformed the EEG surcharge system, letting

to 21% in 2015. While this may indeed seem

Europe. This development, however, did not

the producers of renewable energy carry

like a heavy price to pay for a giant leap of

translate into low prices for end-use cus-

more investment risk and compete against

faith that Energiewende undoubtedly is, the

tomers. The reason is simple. The subsidies

each other. The policy has already borne

size of the electricity bill as a percentage of

that renewables still need to compete with

fruits, with the EEG surcharge component of

median disposable income has actually in-

conventional fuels are costly. Implemented

the price of electricity falling for the first time

creased by far less than electricity price and

through feed-in tariffs, these expenses are

in 2015 after increasing every year since its

is still below the average of EU-15 (EU be-

carried forward to firms and households. En-

introduction in 2000. Critics complain, how-

fore the 2004 eastern enlargement). Germans

ergy is a factor of production, so – like labour

ever, that the new policy only mounts further

now spend on electricity about 2.5% of their

costs – it affects the firm’s competitiveness

barriers to entry for new producers of renew-

income, same as in the 1980s and only 0.5%

in global markets. This can be particularly

ables and the end-customer price halt comes

more than in the last decade. Even in abso-

worrying in Germany, whose economy re-

at the cost of obstructing the progress of the

lute numbers the financial burden seems

lies heavily on exports of its energy-inten-

energy transition.

less than impressive. Thanks to more energy

sive industrial backbone. Unlike households,

efficient electrical appliances, better insula-

however, businesses pay reduced energy tax

While it may be true that energy prices the

tion and more frugal behaviour, the average

and lower charges for power transmission

end-use customers face have already sta-

German electricity bill is comparable to that

and distribution. Moreover, the more energy

bilised, it could still be argued that they are

of an American household, despite the triple

intensive firms also receive a partial exemp-

nevertheless unfairly high, particularly for

price per kWh. This can explain the continu-

tion from the Renewable Energy Resources

the households who the government does

ing strong public support for Energiewende.

surcharge (EEG Umlage), proportional to

not protect by lower charges and exemptions.

Without an excessive strain on their wallets,

the firm’s electricity consumption. Despite all

In 2015, German households paid the sec-

Germans might think, the country is paving

this, the price that the most energy-intensive

ond highest rate per kWh in the EU, twice as

the way towards a safe and sustainable energy

German businesses pay for electricity is still

much as the French and three times as much

policy.

one of the highest in Europe, though lower

as American households. This is almost en-

The UK Steel Industry An appropriate industrial policy response by EDWARD HOCKIN

hen it comes to industrial policy, few

the industry. As with the closure of coalmines

ing to prevent or mitigate the decline in steel

current events have tested the ability

in the 1980s, there is a fear that long-term un-

production?

of government to support manufacturing as much as the Steel crisis currently facing the UK. I refer to this as a ‘crisis’ simply because the potential repercussions of the collapsing

“there is overwhelming evidence that Chinese state owned steel producers are dumping on world markets.”

global steel prices are significant. Job losses

employment and regional economic decline

At the heart of the problem is the fall in com-

will amount to 2200 in Redcar, 900 in Scun-

may plague towns across Northern England,

modity prices. Brent crude, copper and, yes,

thorpe, and nearly 800 across plants in Wales.

Scotland and Wales should the factories fall

steel have all seen seismic declines in prices

On a national level the crisis could see the UK

silent.

as demand from the emerging world (partic-

lose one of its last bastions of manufacturing.

ularly China) falls. The problems caused by

On a regional level, the crisis could be dev-

So what are the causes of this problem and

a fall in selling prices are only exacerbated

astating as so many towns are very reliant on

what role is there for industrial policy in try-

by pre-existing systemic issues that the UK

PAG E 4 1

R AT I O N A L E 2 0 1 5 - 1 6

steel industry faces. Steel producers in the

that global competition is already distorted

protecting them from competition (an im-

UK face some of the highest energy costs of

by the dumping of steel on world markets.

portant distinction).

any steel-producing nation and there is over-

When Chinese state-owned steel manufac-

whelming evidence that Chinese state owned

turers sell their products at below their cost of

So what industrial policies should we not

steel producers are dumping on world mar-

production, this undercuts other producers,

pursue? Some have advocated temporary

kets.

forcing many to shut down, in turn harming

nationalisation of steel plants (the SNP, Plaid

global competition. China has been produc-

Cymru, some on the left of Labour party etc.).

Industrial policy has already been playing a

ing at less than costs with steel makers post-

Such a policy approach is not economically

role here. The government has already un-

ing losses of $10 billion last year. This preda-

proven to work well and can be costly. There

veiled several schemes designed to support

tory practice designed to increase long-term

is no evidence whatsoever that government

the industry to help the industry. Changing

market share by making temporary losses to

ownership will cut production costs for steel

the rules of government procurement (so that

drive out competition, is especially serious

plants and make them more competitive.

they can choose suppliers based on non-price

for the steel industry. Once a plant closes it

Furthermore, it is essentially a huge gamble

factors, thus prioritising domestic produc-

tends not to reopen simply because once a

(with taxpayers’ money) on the collapse in

ers for government infrastructure projects), reducing energy bills by relieving energy intensive industries of the indirect costs of the Renewable Obligation Policy (extra charges on energy ills to invest in Green Technolo-

“we may have to accept that saving the industry is no longer as desirable as managing the decline”

gy), and delaying the deadline by when UK steel plants must meet new EU Industrial

plant is decommissioned it is no longer viable

steel prices being temporary. The government

Emissions Directive regulations. But the pol-

and the sunk costs of building a new plant are

may accrue huge losses and if this continues

icies don’t go nearly far enough to help the

extremely high. Tariffs are therefore needed

for a long period of time, steel plants may still

UK steel industry become more efficient and

precisely to ensure fair competition.

end up closing and the impact of the policy

competitive to ensure they’re protected from predatory trade practices.

would just have been to delay the event at This action has to be taken at EU level and

huge cost.

so far has been a painfully slow process. All of these actions will obviously do some-

The Commission has voted for import tar-

To conclude, there is far more, in terms of in-

thing to help however more can be done.

iffs on some types of Chinese steel exports,

dustrial policy, that can be done at both EU

Many industry experts say that a possible

but nowhere near high enough to have any

level and national level to ensure that British

solution is for UK steel plants to diversify

meaningful effect. Rather than renegotiating

steel is operating on a level playing field with

their products and produce higher-grade

pitiful changes to migrant benefits, why isn’t

its competitors. However, if these policies do

steel. This better quality product will be

Mr Cameron campaigning for substantial

not work, then we may have to accept that

more profitable than the ordinary stuff that

sanctions on Chinese steel, an area where he

saving the industry is no longer as desirable

Chinese plants are perpetually pumping out

is likely to find greater consensus given it’s a

as managing the decline - with steel worker

and flooding world markets with. The role

threat to steel production across Europe.

retraining programs and investment in the

of industrial policy here will be in govern-

worst hit communities required (a lack of

ment grants for steel producers to invest in

Although there is scope for further industrial

such programs being perhaps the biggest fail-

research and development of new high-grade

policy to help ease the crisis we must, how-

ure of UK governments presiding over dein-

steel products and the capital needed to cre-

ever, know the limitations. The suggestions

dustrialisation in the past).

ate these products.

made so far are about putting UK steel on a level playing field with its global competitors

Good industrial policy should be about

There is also a strong argument for import

and to prevent anti-competitive trade prac-

helping firms to cut costs and ensuring fair

tariffs on Chinese steel exports. While the

tices. Good industrial policy should be about

competition. It should not be about saving an

mere suggestion of tariffs would disappoint

making our industries more competitive, not

industry no matter the cost.

proponents of free trade, it must be argued

PAG E 4 2

The Team Editors

VIRGILIO URBINA-LAZARDI

KAVYA SAXENA

PUJAN MODI (Editor in Chief)

kavya.saxena27@gmail.com

p.n.modi@lse.ac.uk

MSc Economics and Philosophy

MSc Economics, 2 year

MARTIN KĂ BRT

TRAVIS JAMES

NEHA BASU

kabrt.ma@gmail.com

travishjames@gmail.com

n.basu1@lse.ac.uk

v.urbina-lazardi@lse.ac.uk

MSc Economics and Philosophy

MSc Economics

Writers

JAUME VIVES

LUKAS RAYNAUD

BSc Economics, 2nd Year

General Course, Mathematics and Economics

VAISHALI MULLAPUDI

EDWARD HOCKIN

v.k.mullapudi@lse.ac.uk

e.g.hockin@lse.ac.uk

j.vives@lse.ac.uk

l.j.raynaud@lse.ac.uk

General Course, Mathematics and Economics

BSc Economics, 1st Year

KONSTANTIN BORN

MSc Development Management k.born@lse.ac.uk

ROBIN PARK

General Course, Mathematics and Economics r.y.park@lse.ac.uk

CHRIS CURFMAN

General Course, Mathematics and Economics c.j.curfman@lse.ac.uk

BENJAMIN AW

BSc Economics, 3rd Year b.c.aw@lse.ac.uk

Designer

NAOMI TAWIAH BSc Social Policy

n.a.tawiah@lse.ac.uk

PAG E 4 3

NADINE NIKOLOVA

General Course, Government and Economics

LOUIS ARISS

n.e.nikolova@lse.ac.uk

STEPHEN CHANDLER

BSc Economics and Philosophy

BSc Economics, 2nd Year l.e.ariss@lse.ac.uk

s.chandler@lse.ac.uk

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