Review of Piketty’s Capitalism
The ECU’nomist
Interview with Professor Bernard Wientjes ISIS Explained Utrecht Photo Tour U.S.E Academy: Day of (in)Equality
December 2014, YEAR 24, ISSUE 1
Filippo Ricci
Le Problème Piketty
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Dear Student, We would like to introduce the Student Interest Body (StIB) to you. With the help of your feedback we try to improve the quality of education at Utrecht University School of Economics! What is the StIB and what are we doing? The Student Interest Body (StIB) is one body where all the different student representative organs of the Utrecht University School of Economics (USE) are united. We basically make the connection between students and the academic staff. We are students willing to listen to your problems and pass them on to the relevant decision making bodies of USE within a short period of time. It is a win-win situation: you have a place to go in case you have an issue with your studies and we obtain valuable information that we can use to improve the program. Moreover, each two or three months we organize an “Awareness Day� where you could meet us and discuss topics regarding your education and also get some free ice-cream, waffles or some other goodies.The goal of StIB is to represent all the students of USE. We aim to discuss matters at hand, pick up joint projects and handle complaints more intensively. Where can you reach us? So if you, as a student, have a matter concerning your courses or other educational matters; Feel free to send an email to stib@ecu92.nl, or, reach out to us when you see us!
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Letter from the Editor
Dear USE inhabitants, A warm welcome back for the new academic year. Summer is long behind us and we are already burying our heads in the neverending readings and assignments. Although your frustrations and stress can be overwhelming, don’t fret because the ECU’nomist is here to the rescue and will provide you with fresh and interesting reads by our very own select team of experts. The Editorial Committee is proud to present hours of hard work and dedication to this magazine exclusively for your benefit. As some of you may already be familiar with, the ECU’nomist is full with insightful articles about internships, exchanges, career experiences of alumni and professionals as well as insider USE information. This year, you can still expect to find the same content as in previous years’ publications but with a new and more exciting twist for a more leisurely read. To improve your reading gratifications, we have decided to use our very own pictures as much as possible within the pages of the magazine. In addition, we have revamped the ECU’nomist look to ensure consistency and professionalism. Along with that, we bid adieu to unacceptable pixelated pictures! In this first issue, to fulfil the improvements that were just mentioned, you can find high quality snapshots of the Trajectum Lumen in Ronja Giesen’s article of her journey through Utrecht’s city centre by night. On the other end of the spectrum, David Orțan will also take you through a review of Thomas Piketty’s book on income inequality and its historical development to say why you should pick up a copy immediately if you haven’t done so already. For those of you still wondering what is actually happening with the Islamic State in Iraq, Filippo Ricci will provide the information you need along with his analysis of the economic impacts. In addition, USE is proud to welcome Professor Bernard Wientjes into the faculty and to your advantage, I managed to interview him and give you insights on his experience as an entrepreneur and leader. To students interested in consulting careers, be sure to read the interview article of USE alumnus Vincent Hosman who is now working in Accenture. The Editorial Committee has new and fresh faces this year and with that comes new and fresh articles. Our old member Mithra Madhavan is still in the committee but she will resume her active contribution once she is back from her exchange in Singapore. The Editorial Committee hopes that you will be enlightened with the articles in this issue and will be looking forward to the ones to come. Special thanks go to Professor Bernard Wientjes and Vincent Hosman for their time and valuable insights. Not to forget, we also accommodate works from freelancers. For this issue, Alberto Bosco wrote about how job polarisation affects the labour market especially in this era of digital revolution. With that said, to aspiring writers out there who want to write an article, we always have a couple of pages to spare for your brilliant ideas. All in all, enjoy your read! Sincerely,
Annette Aprilana Chairman of the Editorial Committee
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Letter from the Board
Dear Reader, The first period is over. You (hopefully) survived your first courses, classes and exams. Whether you have lived your whole life in Utrecht, are from another city or even from another country, you all have in common that you have chosen Utrecht to study Economics and Business Economics. The first period is always a period full of new people, places and experiences. After a while these people and places, that used to be new, will become familiar and will hopefully make you feel at home here in Utrecht. By organizing parties, drinks, trips, a career day, a conference day, lectures and plenty of other fun and content related activities, ECU’92 would like to contribute to making you feel at home at our study, university and city. If you are a bit thirsty or in need of some caffeine in between all these classes, parties and lectures, you are always welcome to stop by the ECU’92 room in the Descartes building and drink some coffee or tea with the ECU’92 Board. Some of you might already know the ECU’92 Board and its members, but for those of you who don’t, let’s have a short introduction: Sam: the secretary and coordinator of internal affairs. If you have any questions about your membership, he is your man! But as a part of his internal function he is always in the mood for a nice chat or gossip with the members of ECU’92. If you stop by the ECU’92 room you will probably find him playing soccer in front of the Descartes building or even worse, inside the ECU’92 room. Tobias: the treasurer of this year’s board. He is all about the money. But if you are in need for some serious cuddle time, it can be said that his cuddles are the best in Utrecht and its surrounding area. So if you feel a bit down, stop by the ECU’92 room to regain more happy feelings and cuddle with Tobias. Most of the time you will find him behind the computer looking for new couches for the ECU’92 room. Willemijn: the coordinator of educational affairs. Good chance that you have already seen her during the introduction week or book sale. If you have a sudden desire for carrots, she is the one to look for. Using the sentence: “My carrots, are your carrots,” she will always share her carrots with those in need of them. As it is more fun to write something about someone else, it should be noted that one of the other board members wrote something about Rian:
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The reason that Rian has such a nice figure, is that she is always busy walking around to make sure she keeps the perfect overview of our association. As a chairman, one of her tasks is to function as the psychologist of the Board and to keep the Board in perfect harmony. As she is a great listener, you can always find her in the ECU’92 room to get a nice cup of coffee and talk to her about your problems.
”
The Board of ECU’92 would like to invite all of you to stop by our ECU’92 room in Descartes, so that we can get to know each other a bit better!
See you soon! Rian van Groningen Chairman of the Board
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Table of Contents
6 Meet the Team
2014-2015 Editorial Committee Members
8 Thomas Piketty Review Why you should pick up a copy now
10 Vincent Hosman Consulting at Accenture
12 Exploring Utrecht A tour of the Trajectum-Lumen
16 The ISIS Explained A short introduction to the ISIS
18 Day of (in)equality Review of the Day
20 Job Polarisation
Labour markets in the digital revolution
22 Prof. Bernard Wientjes Entrepeneurship and leadership
24 Marx and Mill
A comparison for the modern thinker
The ECU’nomist is published every quarter online, as well as printed in a circulation of 500 for members, patrons and external contacts of ECU’92 Annette Aprilana | David Ortan | Filippo Ricci | Ronja Giesen | Mithra Madhavan Study Association ECU’92 Campusplein Utrecht T 030-2539680
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www.ecu92.nl editorial2@ecu92.nl Published by Issuu
Editorial Committee 2014-2015 Annette Aprilana
[Editor-in-Chief]
Hello to all! I’m a 19-year old second year student originally from Indonesia. Even though I’ve had my fair share of growing up in several countries, the one place I love the most would have to be the bustling, energetic and sometimes hectic city of Jakarta, where home is for me. However, I am happy to say that after a wonderful first year, Utrecht has not been disappointing! I really enjoy Utrecht’s city centre in general and my favourite places are Oudegracht and Neude. A bit cliché, I know, but it’s where the nice cafés and restaurants are. I wouldn’t say I’m a food enthusiast although I do have a soft spot for dessert. So if you know any excellent dessert places in Utrecht, let me know!
David OrȚan
[Secretary]
Hi everyone! I am a third year international student and this year’s Secretary of the Editorial Committee. I come from a town in the mountainous area of Romania, so the Fagaras Mountains nearby my town are the place to be for me. These mountains are like a whole new world with spectacular views, where you could walk for days and still feel that you want to see something new. However, Utrecht is not bad either and after more than two years spent here I can say that what I love most are its churches that give so much of its special atmosphere to the city centre. Whether it’s the Dom with its big organ or the little and austere Geertekerk, these places keep the time for the inhabitants of the town with their big tower clocks and are perfect for chamber music concerts, which I enjoy a lot!
Mithra Madhavan
[Layout Editor]
Hi! I’m a third year bachelor student at USE, and of course a proud member of the Editorial Committee. I have lived in the Netherlands for the past 6 years, and before that spent about 3 years in China and the rest in my wonderful home country, India. My favourite place in the world is Rome during Christmas and London as a city to live in. My favourite place in Utrecht is somewhere along a canal in winter when there’s a lot of snow of course. Too bad I won’t be enjoying that this year because I’m on an exchange in Singapore, but I will be back soon!
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Ronja Giesen
[Coordinator Promoter]
Hello there! I am Ronja, born in Canada, raised in the USA, educated in Germany and now living in Utrecht! I am 19 years old and have just started my first year of my Economics and Business Economics Bachelor here at USE. My favourite place in the whole wide world is Charlottetown on Prince Edward Island, the smallest province of Canada. Even though he red beaches and historic houses were the inspiration for the children’s classic ‘Anne of Green Gables’, the best thing about this place are the unbelievably hospitable people that live in this little paradise. The best spot in Utrecht has to be the Wilhelmina Park – the perfect place for a pick nick. If you’re lucky, you’ll see ducklings there in the spring!
Filippo Ricci [Design Editor and Cartoonist] Hey there! I’m a 20 year old international student at Utrecht School of Economics. I am passionate about the world around me and the intrinsic and extrinsic forces which drive it. I joined the Editorial committee this year and I was appointed as the Cartoonist, but I will also be writing articles of political nature. My favourite place in the world is Via Margutta in Rome, Italy. This is Rome’s home to countless artists, artisans, musicians, and a dear friend. My favourite place in Utrecht is actually a bit outside the city and almost considered Bunnik. The forest surrounding the Rhijnauwen is as beautiful as it gets. See you in class folks.
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ThomasPiketty
Capital in the TwentyFirst Century: A new look at inequality and economics By David Orțan
Thomas Piketty’s, Capital in the TwentyFirst Century, has become a hot spot within the economic profession since its publication in English. What is more, it has been appreciated by people outside the field, thus turning out to be a best seller. This is rather interesting, given the rather complicated technicalities involved in understanding the mechanisms at play. It is fair to say though, that the book is written to appeal to the layman too, which may also explain its considerable length (577 pages excluding notes and appendices). The main topic of the book is income inequality and its historical development. Piketty analyses income distribution in the last two centuries using the tax records of the few countries that have such data available. As you can imagine, the analysis is therefore mostly focused on France, UK and US, although other countries are considered every now and then. The central economic identity of the book is the one between the rate of return on capital (r) and the rate of output growth (g). The economic rationale on which it rests is that when r>g, the incomes of the capitalists (those who possess significant amounts of capital which make up for - most of - their income) grow at a higher rate than the incomes of those who do not owe - most of - their income to capital, which means that inequality increases.
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Piketty distinguishes between three periods during the last two centuries in terms of income inequality. The first period comprises the nineteenth century and the beginning of the twentieth, when inequality was very large due to the high value of r compared to g. This trend did not manifest itself (or at least not to a very high degree) in the US due to the fact that capital was not as concentrated as in Europe. The age concerned is characterized by huge inheritances and small bargaining power on the part of the workers so that the increase in output and prices is not matched by an increase in wages. The second period is the one after the First World War, when inequality decreased due to the fact that the relation was reversed by the economic boom that took and because of the redistributive policies of the governments, the rise in unionism and other social changes which took place in society. This was the time of the New Deal in the US, left wing governments and economic planning in UK and France, especially after the Second World War, and Keynesians policies on a massive scale that boosted growth. This tendency came to a halt at the end of the 70’s, beginning of the 80’s with the so called “conservative revolution” that took place both in the UK under Margaret Thatcher and in the US under Ronald Reagan, which boosted the incomes of the capitalists. In other words there was a movement towards more inequality
Review again. The interesting thing is that the same trend appeared in other European countries as well, despite of the more left-wing governments. However, it was much less obvious. After analyzing the history of income inequality Piketty tries to take a look into the future, arguing that inequality will most probably increase in the decades to come. Here, another economic point needs to be made. With the relatively low prospects of growth in the following decades due to low technical progress and small labor force increase, g from the above mentioned identity falls. However, as we have capital intensive economies, this determines also r to fall. So, where is the problem? Piketty argues that g will fall more than r due to the fact that it is possible and easy to replace labor with capital, as a result capital will be more diversely employed. Hence, if workers are replaced with capital in some industries, the rate of return on capital in these industries does not fall proportionally to this accumulation (because capital is so diversely and usefully employed) so that the share of capital in the national income increases. Piketty is supported in his argument by historical evidence. This signals a further increase in inequality (r>g).
Guardian) add up to the claims of Piketty that we are stuck in some study methods that depart us from the real world problems. In other words, the obsession of economists with mathematical models, where “representative agents” act, may not be the only way to go about in economics. Too much the economic science has departed from history, philosophy and other social sciences resulting in a dry subject where into which only a few mandarins can find their way. Even though the solutions to income inequality suggested by Piketty might not satisfy some as they are basically based on redistributive policies and a world scale tax system which might not be entirely feasible, his analysis is important not only because of the questions it raises regarding inequality but also because it comes as a breath of fresh air within the economic profession and argues for a change in the paradigms currently employed in economic thinking.
Furthermore, what Piketty seems to dispute is the belief among economists that capitalism and the market mechanism reduce inequality within a country. He shows that the period of 1950-1980 was the exception rather than the rule when it comes to reducing inequality. Hence, even though his tools of analysis are modern and different from the ones of Marx, he seems to arrive at the very same conclusion, that capitalism is faulty due to its inner mechanisms, constructions and that the whole economic system is highly dependent on growth - technological or labor force. This skepticism must be seen in the light of the different doubts that have been expressed in the years since the crisis concerning the way we look at economics and the principles that are so well grounded in our minds. The relatively recent protests of economics students around the world against the way economics is taught (see “Economics students call for shakeup of the way their subject is taught”, Inman, 2014, The
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What Consultants Do: Work Hard, Play Hard By Annette Aprilana
You may have seen some posters in the Descartes and Adam Smith buildings that advertise one of the world’s most prestigious consulting firms, Accenture. Lucky for you, on the 7th of November, I had the chance to interview USE alumnus Vincent Hosman in his lavishly decorated office in Amsterdam Zuid. There are of course many different departments in which one can be a consultant at Accenture and in one of the small private meeting rooms, in his sleek and professional suit, Vincent told me what it’s like to be a strategy consultant.
Could you tell us a bit about your professional background? After my studies in Utrecht, I started for myself as an entrepreneur in consulting. I quickly realised that I missed working in a team and I could accelerate my learning by working with experienced people. Therefore, I decided to apply for a job at a large consultancy company: Accenture. I first met Accenture at one of the company days of ECU’92 in my second year during a one-on-one meeting. Three years later, I reconnected at a recruitment event and participated in
the Accenture Master Class. This master class gave me great insight as to what it’s like to work at Accenture and the kind of people I would be working with. Now I’ve been working for more than 4 years in the strategy department. What is the work environment like at Accenture? At Accenture, we usually work four days a week at the client’s office and one day, on Fridays, at our own office in Amsterdam. The day at our own office is important to consult with colleagues,
Accenture HQ on the Gustav Mahlerplein in Amsterdam
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Interview
share knowledge, socialize, get training and have a drink at 5 on Fridays. My working hours depend on the project, the stage of the project and of course the location. Normally I work between 40/50 hours a week but close to the end of a project this sometimes increases to 60-80 hours. I actually like this, as you really are working towards a goal with your team and of course successes are celebrated intensely as well. What I really think is important are the colleagues you work with on a day-to-day basis. Accenture Strategy is a very close community where we do a lot of activities together. We have drinks on Fridays in the office and many go out afterwards here in Amsterdam. It’s more than just work. The phrase that is often used in consultancy and in other firms is work hard play hard. I think we do both of them in quite a good way. Were there any specific courses or subjects from your Bachelor or Master that you found useful for your current work? What I really use on a day-to-day basis are the capabilities, mostly analytical problem solving and effective communication that I have learned during my bachelor and master at USE. The course that are sometimes applicable are finance courses because our advice is usually supported by a business case. Net Present Values, Cash Flows, Balance Sheets are valuable in my job. But if you talk about Macro or Micro economics… it’s good that you understand the basics, but it’s not something that I apply in my day-to-day job. Since you say you don’t use your knowledge of micro/macro very much, what do you actually deal with? Let’s take my last project as an example where we developed a “Vision 2020”. The client was outperforming its
competitors today but needed to step up their game to stay ahead in the future as well. They came to us with the request to bring in an outside-in perspective of how the world will look like in 2020. I connected with our most senior experts around the world to capture their vision. Our project team aggregated these insights in a compelling story which we presented to the client during a two day workshop. An important element during the workshop was to create a buy-in of the client by co-creation of their “2020 Vision”. Afterwards we developed a roadmap listing the activities required to realize this vision and of course a highlevel estimate of the costs and benefits. Economics was of course part of our view on the world in 2020, but one of many. What makes one a successful consultant, especially at Accenture? You have to be very bright, analytical, social, proactive and very flexible. Strategy consultants are recruited based on their great analytical skills as we focus on solving complex business problems for our clients. Flexibility is required as we constantly, on average every 3 months, start new projects with new clients on various topics. Being proactive is really required to progress in your career at Accenture, there is career support from your mentor and career counsellor but in the end it is up to you to make things happen. One of the main core values of Accenture is our global network of 300,000 professionals across the globe. Leveraging the knowledge of this network is essential for project success so you should be able to communicate and network. Also, a good local network of colleagues helps to finish projects successfully.
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What is your advice to USE students who want to have a career in consulting or are still deciding on what to do? First of all, identify what your ambitions are as soon as possible. This enables you to prepare yourself during your studies and build an interesting CV. This starts with truly understanding the recruitment requirements of your preferred job. Commissions at ECU’92 for example are very good for your résumé but also exchanges, playing sports at a very high level, or being a student assistant. Try to make sure that you have a couple of ticks in the boxes and of course, good grades matter too, especially for your thesis. It helps to visit as many recruitment events as possible; go to in-house days and sign-up for master classes. These events are the perfect opportunity to meet and talk to the people you will possibly be working with. They can give you a first hand insight on how it will be to work for that company. Always try to use your connections at the company you are applying at, they might be able to refer to you, which often helps in the CV/Motivation Letter selection. Any last remarks? I think consulting is a very interesting career track with an enormous learning curve. In a very short time you perform many projects, cover various topics and see numerous companies. Consulting is a performance based industry so if you outperform your peers, you will be able to get your promotions fast!
Photo Tour of Utrecht: The Trajectum Lumen By Ronja Giesen
Next up: Tunnel Ganzenmarkt. Alongside the Oudegracht, many restaurants and bars are located in the cellars below the street level. Back in the day, merchants had their goods transported over the canals and stored them in the cellars at water level underneath their shops. The tunnel was used by horse drawn carriages that transported the goods from the docks. Standing at the water’s edge you can see the many bridges over the Oudegracht illuminated. The bridges used to be filled with markets and their names tell us about the products sold there. For example the Bezemburg used to be the place to buy brooms and Bakkerbrug means Baker Bridge.
As many of you, I had seen some of the nice light installations scattered across the city and decided to go to town on it. On Saturday November 10th I played tourist in our beloved Utrecht and went on the Trajectum Lumen walking tour with camera and tripod ready to capture the light in the dark. Now, to the tour – first stop: Neudeflat. This high rise has been seen with scorn in comparison to the picturesque small houses surrounding the Neude. To reconcile the peeved citizens, Utrecht filled the windows of the first story with a video installation designed by students of the HKU. Two big screens show the eyes of some of Utrecht’s businessmen. Have a little stare down after sundown!
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Photo Tour
In front of the neoclassical Stadthuis you will find the coat of arms of Utrecht. The red diagonal represents Utrecht’s patron saint Sint Maarten who split his read cloak to share it with a beggar. If you walk through the light projection, look up to the Dom tower! The lights will guide you to the top where the statue of Sint Maarten will be illuminated. A little wander through the residential streets of Utrecht brought me to the hidden Sint-Willibrordkerk. Utrecht used to be a Lutheran city and the city did not offer any land for the Catholic to build a place of worship. When a couple of houses in a residential area were torn down, the local Catholic build the Sint-Willibrordkerk in their spot. It remains quite hidden amongst the other residential buildings but at night you can see its halo. My favourite church of Utrecht has to be the Janskerk, though. Near the University library in the Drift you can find it glowing blue and red from within. Even the trees in front of it are lit up and walking through them you can hear twinkling noises emanating from their crowns.
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Following the Kromme Niewegracht with its glistening waters, I found myself at the Pieterskerk, a quiet, hidden little haven with little pebbles glistening in different colours between the cobble stones. From there I walked to the Pausdam which shows off two historic buildings. The big house with the blue lights in the windows is called Paushuize. It was the residence of the only Dutch pope Adrian VI, who reigned during the Lutheran revolt. The other is part of the university buildings; in regular intervals you will be able to see an owl above the door, hinting at the building’s use. From here you can already see the Dom tower.
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The Peace of Utrecht was signed on 11 April 1713. During the year long negotiations of European diplomats, the city of Utrecht wanted to present itself in the best light so that arts and culture flourished. The illuminations of the Dom represent the thousands of candles that were light where the negotiations took place. My last stop was the Buurkerk, Utrecht’s oldest parochial church. Like many other churches, it was not visited much in the 1970s and therefore repurposed to house the Museum Speelklok. One of the nicest features of churches, to me at least, are their stained glass windows. The artist that designed the light installation of the Buurkerkhof preserved this feature by setting up a free standing stained glass window illuminated from aback that projects a lovely mosaic of colours onto the cobble stones at the foot of the church. If you want to take a look for yourself, you can book tours with the tourist office and through the Trajectum Lumen website (http://www.trajectumlumen.com/portal) or download the free app Lumapp and guide yourself.
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By Filippo Ricci
T
urn on your television, laptop, tablet or phone. Grab a newspaper or magazine; what do you see? Probably some headline about the ISIS. But what is the ISIS? With everything that has been happening lately in the world and the general confusion surrounding the topic; I thought it would be good to provide a general introduction to this complicated topic, in a brief, yet concise summary. In this article I will do my best to explain the relationships and motivations behind the groups and faiths involved in the current conflict and the situation as it is. As this is a difficult and incredibly complex situation, some generalizations will be made in order to simplify something which is otherwise incredibly confusing. Finally, I will also provide you with a basic financial overview of certain agents involved in the conflicts. It all began in 2003. Following the 9/11 attacks, the Bush administration changed the notions of sovereignty and international law as we knew them. At the time, Iraq was being ruled by the president/ brutal-dictator Saddam Hussein. The US–and a number of other countries–invaded Iraq under the pretense of ending Saddam Hussein’s support of terrorism, WMDs and freeing the Iraqi people. This all happened relatively quickly; the invasion phase itself lasted 21 days and ended when American troops gained control over Iraq’s capital city, Baghdad. The situation escalated into something completely different. Saddam Hussein was a Sunni. He actively persecuted Shia muslims. But what do Shia and Sunni mean? To understand we must quickly look at the religion of Islam.
Image: Iraq After 2006
The Islamic world consists of 1.6 billion people worldwide (24% of the world population) and more than 45 muslimmajority countries. The two main denominations of Islam are Shia and Sunni; they represent about 15% and 85% of the total muslim population respectively. Back to the origins of the conflict; Saudi Arabia and Iran. Both countries are almost entirely representative of one of the two faiths; Saudi Arabia is largely Sunni, and Iran is largely Shia. Both countries also have no separation between state and religion, have domestic problems, and have a lot of oil money. Both countries support groups which fight groups of the other religions. One of these organizations that Saudi Arabia supported was the ISI or the Islamic State in Iraq.
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Things are starting to get complicated. After the US had invaded Iraq, it maintained control but hadn’t a plan for the state. It wasn’t long before the previously suppressed Shia muslims–recall Saddam Hussein’s reign–started suppressing Sunni muslims. Of course the Sunni responded with Al-Qaeda and various other types of militia. The year is 2006, the streets of Baghdad are consumed by civil war between the belligerents. In an unexpected turn of events, the US had created the terrorist that they were trying to eliminate. We fast-forward to 2010 when the Arab Spring happened. In Syria, dictator AlAssad refused to step down and the situation escalated into a civil war. Mean-
Current Affairs while, ISI was already quasi-controlling areas in northern Iraq, and started taking advantage of the situation in Syria. Their idea was to create a unified Islamic state, or what we know as ISIS. The way they went about this was to go to war against almost every other Syrian and other rebel factions. This was so radical that Saudi Arabia and even Al-Qaeda bailed and stopped supporting them. We cross the south-eastern border and we’re back to Iraq. The US had just left and the situation is the following. Shia PM Nouri Al-Maliki took power and started segregating Sunni muslims when possible. The current government there is regarded mostly corrupt, incapable and generally disliked by its people. Recently, ISIS felt the need of more territory in Iraq; this is a big problem. Iraq has a standing army of 300,000, created by the US government. The systematic flaw is that the army is not loyal to the Iraqi government, and it’s withdrawing city after city, as ISIS spreads like a destructive cancer. It’s now 2014 and ISIS has
effective control of a large part of Iraq, including Mosul, its second largest city. Let’s briefly talk about finance. ISIS is truly an organization in the sense that it keeps the books just as any other organization would. The RAND (Research ANd Development is non-profit organization specializing in intelligence and is funded by the US government) investigated approximately 200 documents that had been collected from ISIS and Al-Qaeda. Findings showed that donations to ISIS amounted to a mere 5% (recall Saudi Arabia), which meant that ISIS funded the rest of its operations by itself. It did this by requiring their operations–kidnapping, extortions, bank robberies, oil refineries–to send back a percentage of the generated income back to its headquarters. The funds would then be redistributed according to strategical need–planned attacks, replenishing arsenal, etc. The total assets figure stands at a stunning 2 billion USD; this makes ISIS the richest terror organization the world has ever seen.
Image: Iraq and Syria ; June 2014
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Once again, the ISIS’ goal is to create a Super-Islamic state. Tension runs high in the region, and both the governments of Syria and Iraq, are adequately taking care of the situation. There’s fundamental problems with the framework of these countries. Recall that despite the existence of an Iraqi army, it is largely dysfunctional due the untrustful view of the government. The situation is complicated. The economies of Iraq and Syria are in shambles after the near perpetual presence of war. The west has made mistakes and perpetuated the conflicts, sometimes harming their own economies, namely through excess government spending which should have and could have been avoided. The US has just recently injected new troops and President Obama signaled what he calls “a new phase” for the conflict. We can only hope that everyone has learned from previous mistakes.
The Day of (In)Equality at Utrecht University School of Economics By Ronja Giesen
Kick-off of the USE Academy: The Day of (In)Equality 24 September 2014 The Piketty-wave has been tousling us for a while now, but how much do we really know about his Capital in the Twenty-First Century and the issues surrounding it? The Day of (In)Equality has shed some light on these questions and raised many more. Starting a new tradition at the University Utrecht School of Economics (U.S.E.), the new semester and U.S.E. Academy were kicked off with a one-day seminar on (in)equality. In keeping with U.S.E.’s goal to take a “real world perspective” on economic issues, six presentations and five workshops by researchers from not only the University of Utrecht but also the OECD (Ana Llena-Nozal), WRR (Monique Kremer, Robert Went), VrijNederland and De Argumentenfabriek (Kees Kraaijveld) tackled le problème Piketty.
Inequality in Europe – Ana Llena-Nozal (OECD)
There has been a trend of increasing inequality in income distribution in OECD countries with great disparities between the fairly equal Scandinavian countries and great inequality in South American countries such as Mexico or Chile. The mean of inequality between the OECD countries (with a Gini index of 0 being equality and 1 being inequality) is 0.32 according to latest statistics. Surprisingly, there has been an increase in inequality in times of economic boom and recession alike. There have also been tendencies of equalization e.g. in Chile but that development is unfortunately the minority. The increase started in the 1970s in the English-speaking countries and after a delay of 20 years other countries have been following this trend. Differing from researchers before him, Piketty has laid a focus on the top 1% of incomes and concludes that these have been soaring upwards, especially in the English-speaking world: USA, Great Britain and Canada, as OECD statistics show. After the financial crisis of 2008, whose effects we are still feeling today, there has been a dramatic increase in the inequality of before-tax incomes – especially in the European countries most affected by the crisis: Greece, Spain, etc. – while the inequality of after-tax incomes has barely changed. Thus taxes have had a great impact as an equalizer several countries but sadly not all (USA, Chile, and Switzerland). The OECD has constructed a list of factors impacting the rise in inequality. Major contributors to the trend are the skill-biased technological changes, change in employment
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patterns and working condition – the biggest trend being the increase of temporary employment and the number of selfemployed, that are at a higher risk than those with standard working conditions – and less redistribution, e.g. in form of taxes. Minor contributors are the change in household and family structures – like the increase in the number of single households – and the fact that people tend to marry within their income class. Policy regulations have changed to the better and to the worse and there could not be any direct influence be attributed to the trend of globalization. Therefore the OECD recommends government tax-redistribution as an equalizer and a broadening of the tax base by removing tax-exemptions. The social system should be made more efficient and there should be a greater focus on the inequality between workers with traditional employment and those temporarily or self-employed. In the question round the issue of wealth inequality was raised.
Inequality in the Netherlands – Monique Kremer (WRR)
One year ago there had been hardly any research on inequality in the Netherlands but after the Piketty-wave, the problem is being tackled. The leading questions concerning inequality in the Netherlands are: What are the consequences? How much inequality is acceptable? How can we improve inequality when it’s too high? The Netherlands rank in the bottom half of the spectrum with much less inequality than in the USA but still more than in Scandinavia. The disparity between top and medium or bottom
U.S.E Academy
incomes, however, has been rising after a steady decrease leading up to the crisis of 2008. A new trend towards more single earners (and single parents) and self-employed has been observed like in the rest to Europe. The top 10% of the Dutch possess 60% of the total wealth, while the bottom 50% have no buffer at all. The Gini coefficient denotes the Netherlands’ wealth inequality at 0.68, which is comparatively low. Looking at all of these statistics, one might ask what the consequences of inequality are. Some, like Wilkinson and Pikett drop a whole array of issues at the doorstep of economic inequality, ranging from teenage pregnancy to criminality. Kremer disagrees with the extremity of this proposal but points out that economic distance will also lead to social distance and less trust between social groups and also towards the government and the political system in general. She adds that economic inequality is not only an incentive to individuals, resulting in economic growth, but when it reaches a certain limit, it can harm economic growth. According to Kremer,
the wealthy have a limit of how much they can possibly consume. There is only so much chocolate you can eat. Therefore the wealth has to be spread to create constant economic growth. So what does the welfare state do about these issues? A reduction in wage inequality is already being tackled and tax-redistribution is working towards more equality. But one has to do progressively more as inequality increases to lessen the effect. Therefore, not only re-distribution is of importance but also pre-distribution through consumer pressure and profit sharing within companies.
Pen and Tinbergen Revisited – Loek Groot
Inequality was already an issue of interest to Jan Pen and Jan Tinbergen. In 1976 the two economists conducted intensive research on this topic and confirmed the common belief that the equality in income distribution was rather sable. Pen and Tinbergen measured the change in a total 25 indicators, coming to the conclusion that from 1938 there had
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been a strong trend towards economic equalization. Pen and Tinbergen predicted this trend to continue into the future. The U.S.E. has revisited this idea and evaluated the change in 4 of these indicators from 1976 onwards. In continuing Pen and Tinbergen’s efforts they had to denote a slight rise in inequality to the present.
USE Academy
The USE Academy is a series of extracurricular lectures every other Thursday from 5pm to 7pm in the UCU auditorium. These lectures are targeted at master’s students and honours bachelors students and the Day of (In)Equality was a successful kick-off, combining the key aspects of the USE Academy: being inspired by fascinating people and their research, seeing current issues in a new light and most of all, walking out of the auditorium with many questions answered but even more raised.
Job Polarisation: Labour Markets in the Digital Revolution By Alberto Bosco
On September 24, Anna Salomons, assistant professor at Utrecht University, provided an opinionated audience of students, researchers and professors with deep insight into the issue of job polarisation in occasion of the Day of Inequality, exposing the nuances and consequences of technological development on the future of the labour market in a clear, yet introspective discourse. The centrality of technology in most industrial fields underpins the importance of this debate, which is gaining ever more attention due to the implications of technological progress, inextricably tied to the way we work, learn and live. The role of machines within the markets constitutes a starting point for reasoning, in a period in history acknowledged as the digital revolution. Since the 1980s, the fruits of technical research in the fields of communication and information have shaped societies and markets, raising questions regarding the future of the role of human labour within a gradually mechanising industry. Nonetheless,
production is notthe economy’s sole heavily affected area, as services such as healthcare are undergoing a shift to a reality, in which machines assist humans in their labour, if not replacing it entirely, leading to a sort of automation anxiety, fearing what Keynes advocated as technological unemployment. Frey and Osbourne’s on-going research (2014) exposes the frightening actuality by examining how 47% of jobs could eventually be automated, if not complemented technologically. The technological think tank’s purpose is not to depict a dystopian future characterised by increasing unemployment, but rather a transition to a world complemented by machines and innovation. The advance towards a services-dominated economy implies the polarisation between soft-skill and technical-skill related jobs. People’s underlying resistance to change, more than technological progress itself, is the true obstacle to the implementation of such measures within the working environments (from
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doctors to common law judges). Despite the uncomfortable nature of the subject for the many technologically sceptical, modern history demonstrates that the advancing automation has never reduced employment. The explanation lies in the dynamics of the economy. It must be recalled that technology is also the reason for the surfacing of new markets, which carry with them new labour opportunities. Thus, for those who still do not feel convinced by the rapid pace of the digital transformation, fear not, the impact on labour may be viewed as an opportunity, rather than a threat. Increased productivity, in addition to the creation of new goods and services, are the symptoms of technological advance, albeit the enactment of the latter typically takes fifteen to thirty years (from 10% to 90% adoption). Nevertheless, it is of crucial importance to understand how change will affect future employment. The digital revolution is best described as a biased shock, which will not affect working positions equally. Canonical models recognise an increase in demand for skill-related jobs, whilst exposing a negative trend in the share of middle-income jobs (Percentage change in Employment by major occupational category 1979-2012). The bimodal distribution of jobs shows a rise in low-wage unskilled jobs and highincome skilled jobs, requiring soft skills rather than technical abilities liable to automation. The skill biased technological change and the increase in outsourcing (see Acemoglu on job polarisation) essentially portray a future in which routine task-based jobs are the main victims of automation. The social implications of such projections raise questions vis-à-vis a necessary legal framework; as a member of the audience effectively formulated, how do you prosecute an al-
Guest Article
gorithm? For instance, if a computerized surgeon erroneously harmed a person, it would be uncertain of whom the felony would be. Breakdowns and technical problems must be accounted for in the equation too. MOOCs (massive open online courses) are another example of the digital revolution’s impact. Leaning on the side of regular education, it may be argued that these online courses lack a commitment device and curriculum development, but may still be employed in different situations. MOOCs could be the solution to scholastic unavailability in LEDCs, eventually improving future employment
trends among educated workers. The working environment, as we presently conceive it, is at the crossroads. Technological advances are synonymous of innumerable advantages for a future in which, however, equality of jobs is at stake. The position of middle-skilled jobs, easily replaceable by machinery and software, may be the hardest hit by technology’s advent, exacerbated by the recession and the current costs-cutting frenzy. In simplistic terms, job variance is increasing and will eventually contribute to the polarisation of the workforce, as some jobs can be automated, others cannot. The future question is not necessarily alarming. Changes in working
practices do not always imply unemployment – as job polarisation affects the labour market, the same occurs vice versa.
Do you want to be part of the next ECU’nomist? Are there pressing issues on hand that you want other people to think about? You can write about interesting literature, inspiring people, current and historical events, anything that the scope of economics encompasses or that you think economists will find interesting. If you are interested, then send your piece to editorial@ecu92.nl Happy writing!
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What the #1 most influential Dutchman has to say about entrepreneurship and leadership By Annette Aprilana
Early on at the start of this academic year, I got news that USE is proud to have Professor Bernard Wientjes as the new holder of Utrecht University’s new rotating chair for Entrepreneurship and Leadership. On the 6th of November in the midst of his busy schedule, I was able to sit down and chat with him in his office in Adam Smith. Although he is only in the university once a week, he gladly spared some time to share his vast knowledge on entrepreneurship and leadership. Could you give us a brief overview of your professional background? I studied civil law in Amsterdam a long time ago. When my father died shortly after I started working, I was forced to stop my professional career and take over the family company, as I was the eldest son. I started to be an entrepreneur and I was very successful. The company grew and I bought some other companies so in the end it became rather a holding of companies. After a few years, I sold my biggest company to Villeroy & Boch, the largest ceramic company in the world. After this sale, Villeroy & Boch asked me to be a member of their Executive Board, which I did for five years. Afterwards, the
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Interview Dutch employers’ organisation, VNONCW, asked me to be both the Chairman and President. VNO-NCW is by far the biggest organisation for employers and entrepreneurs in the Netherlands. They represent the interest of the entrepreneurs and the employers to the government and to the unions. After nine years, Utrecht University called me asking: would you be so nice to be a professor one day a week to tell the next generation about entrepreneurship.
ley of Death, which is the second step, and it is always the most difficult. The Valley of Death means that although you are successful and made an invention, you can’t prove that the market is there and it is quite difficult to find financing. In America it is much easier because then you can make an IPO, for which there’s always seed money. Here, it’s more difficult. But the government is now developing these kinds of instruments to help the smaller companies to go through.
You say that creative and innovative entrepreneurship is essential for a healthy economy and for solving social issues. Why is this so important? I always say that the growth of the GDP is only creative entrepreneurship because they create new products and thus create new added value. New products mean more employment and more income, the drivers of the economy. The economy is not conducted by the civil servants, it’s conducted also by multinational companies. But multinationals of course get their fuel more and more from entrepreneurs and younger, smaller companies, like the ones starting up here around Utrecht University inventing new ideas. It has always been in the course of history that entrepreneurship created growth of the GDP. The assumption that we can keep our living standard without entrepreneurship is wrong. Take China for example: from the moment that China decided to give room for entrepreneurship, its growth has been tremendous.
Do you think youngsters here have the determination to become entrepreneurs? There are more young entrepreneurs than a few years ago, but still not many. According to the latest figures only 6% of the students in the Netherlands have the intention to be entrepreneurs. In America it’s 12%. There are potentially more, and that’s the reason that I am here; to tell the students how interesting it is. If you have the right character to be an entrepreneur and are successful after creating your own new product, it’s wonderful. I worked for a big multinational, which was very interesting. But to create your own product, to create your own market, and to grow in your company, now that’s a challenge.
Considering the health and outlook of the Dutch economy in the long run, will we see an increasing number of young entrepreneurs in the Netherlands? We need and we must see more young entrepreneurs in the Netherlands. This is also a message that needs to be passed on to the Dutch government. We need the new entrepreneurs. The situation changed a lot since the last three or four decades. Nowadays, to be successful, you have to have a lot of knowledge and the best thing is to study in university. We need the intelligent people from universities. If your university gives you room to develop this part of your character, you can be very successful. There are a lot of start-ups in the Netherlands and also in Germany. To start up a company is not so difficult, but then you go through the Val-
If you have the right character to be an entrepreneur and are successful after creating your own new product, it’s wonderful. What makes a good entrepreneur? First of all, it has to be a part of your character. Just like what makes someone a good scientist, musician or linguist, it has to be in your genes, you can’t learn it. But when you have it in you, then you can develop it. What I see here now, not only in this university, but elsewhere as well, is that more and more students start up their own companies. The Dutch entrepreneurship organisation called Jong
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Ondernemen (Youth Entrepreneurship), supports young people even in high school to initiate their own start-ups. I think universities have to give room for the cultivation of this interest and have to give more possibilities for entrepreneurship. Where do you teach and to whom? I am not part of a fixed curriculum. They fit me in all kinds of courses because I’m only here once a week. So I contribute to all kinds of lessons that are interesting for the students and to tell them about entrepreneurship during their study here. Essentially, Utrecht University asked me to be a professor here and to transfer my knowledge to you. My experience of 35 years’ worth of entrepreneurship and nine years as the chair of the VNO-NCW gave me such an experience that people are interested in and want to learn from, and that’s what I do. I share about the real practices, which I notice already a few times is what students are interested in. What’s happening in the real world? How do you make deals with a union and the government? How do you protect entrepreneurship in your deals with the unions? Questions like that are what I discuss. In fact, I have a very broad agenda. I told them here, use and misuse me where you can. Use my experience. How can one know if they have a passion for entrepreneurship? When you think and when you feel about certain things, check yourself at all times. Don’t forget to think over and over again about a career in entrepreneurship. Look very carefully at what entrepreneurship means, and whether it thrills you, if you feel you like it. Look at the options, and don’t forget it. Personally, there are more people with the genes to be entrepreneurs than there are entrepreneurs. In my opinion, the future of economic welfare and economic growth is entrepreneurship.
Back to history: Can John Stuart Mill and Karl Marx still mean something for the modern thinker? By David Orțan
Karl Marx One only has to read a novel by Emile Zola or Charles Dickens to realise the social problems of the 19th century. Capitalism was already operative in Western Europe, but its benefits were definitely not shared by the whole population. The level of inequality was very high (Piketty, 2013), child labour and poverty could be seen everywhere. It is that context that one has to keep in mind when reading The Principles of Political Economy (1848) of John Stuart Mill (1806-1873) and Capital: Critique of Political Economy (1867) of Karl Marx (1818-1883). Mill’s Principles is quite an extensive book. It covers issues like production, distribution, exchange, social progress and the role of government. It was published in the year that Europe faced
a great wave of revolutions, except for Britain. Hence, one could say that economic questions were quite the stuff of the day. In his book, Mill reformulates most of the arguments brought by other economists of the classical school, but he adds more substance to them or even disagrees. He is convinced that the production of goods is done according to physical laws, but distribution is a question of social choice. However, he does not see the link between the two (so the way distribution is done does not affect production, which will be a point on which Marx puts some emphasis). The fundamental principle that stands behind prices is the equality of supply and demand. However, as the other classical economists, he does not emphasize the
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role of demand (he only acknowledges the role of demand in price formation in the case of goods that are limited in quantity, e.g. art works). In the long-run, the price of most goods depends on the cost of production. He further adheres to the idea of labour theory of value, saying that “the effect of the others [factors] is smaller” (Mill, 1848; 1965, p.449). With respect to wages, at first Mill accepts the wage fund theory, according to which wages are paid from what is left after covering the costs and profits and that amount is fixed, therefore wages depend upon the size of the fund and the number of employees. In later editions of the Principles he repudiates that theory, admitting the possibility of capitalists giving more or less to labour depending on their bargaining power vis-à-vis
Contrast capital accumulation and exploitation. Both of them see the scenario for class struggle, however Marx is much more explicit and radical in that.
John Stuart Mill employees (existence of trade unions etc.). Hence, he basically describes the possibility of a class conflict over wages. Moreover, he also explains the nature of profits as being a return for the abstinence (saving), the risk taken and the labour of the capitalist (Book II, Chapter XV). Mill mentions that it is inevitable for society to reach the stationary state from an economic point of view. The mechanism is simple: as capital is accumulated the rate of return on it diminishes, hence people will have no reasons to accumulate (Sandmo, 2011). However, he sees the possibility of non-material development (namely social and intellectual). In the case of Marx’s Capital, it can be said from the beginning that it is a difficult book. The terminology that Marx employs is hard to follow and sometimes confusing (for example the multiple types of labour). The aim of the book is to criticize capitalism and to prove that because of its inner contradictions, it will destroy itself in the long run. What distinguishes Marx from the classical economists is his forceful tone and style and radical ideas. It was written during the time spent by Marx in Britain, after he was expelled both from his native Germany and France due to his radical writing.
The concept of the surplus value is seen as the start of capital accumulation. Surplus value is the additional value of a product over its constituent elements (capital and labour). Because capitalists want to accumulate capital, they extract profits by exploiting labourers who have to divide their labour into labour that they do for their wage and labour that they do for the profits of the capitalists (the latter exploit the former). Hence, there are conflicting interests between the two classes (class struggle). Capital accumulation leads to a progressive reduction in the rate of return (which results in destructive competition between capitalists) or it leads to such an increase in the capital share of income that labour will become redundant (which would lead to revolts). Hence, either way capitalism is seen as doomed by Marx because of the desire of capitalists for profits that are used neither for consumption nor for the satisfaction of needs but just for accumulation. We can see from the above that the major themes treated by both Mill and Marx were similar, which is understandable given the common environment that influenced both, however their views on them differed. Profit appears to be for Mill something that is justified (compensation for abstinence, risk and effort), whereas for Marx it is just the basis for
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When it comes to the long-run evolution, Mill sees the economic stationary state, but he mentions the possibilities for society to develop in non-material matters. Nonetheless, he does not give good arguments for why that should be the case except for the fact that people are social and moral beings. Having a materialist view on society and history, Marx sees the doom day scenario arising because of the contradictions of capitalism, but he sees it in his very own terms. However, he completely overlooks the possibility of technological and productivity growth to overcome the effects of capital accumulation. This should not make us reject his entire analysis though. We should keep in mind that capitalism depends on growth, technological change and whether or not capital can be diversely employed. Except for these Marx’s scenario does not seem so far-fetched. While Mill has a style of writing that is quite similar to the one of its predecessors (rather philosophical in some places), Marx loves memorable and ardent phrases. For example, in order to explain the lack of use value and homogeneity of money, Marx uses inter alia the following: “Hence money may be dirt, although dirt is not money” (Capital, 1867, Volume I, p.73 ). In the case of Mill, the purpose is to write an economics book at a time when economics was still relatively undifferentiated from other social sciences; for Marx it is to illustrate his political and philosophical views and to substantiate in a more scientific way his earlier writing, The Communist Manifesto (1848). These two books are equally interesting for the philosopher, the economist or simply the thinker in you. They contain powerful arguments on issues that still shape our public debate: distribution of wealth, class conflict and source of value. Critically and carefully read they could maybe help us find our way through the complex problems of social sciences.
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