Author Archives: Alberto

The hidden inefficiency. Reflecting on modes of provisioning in new economic thinking

The ever-brilliant Cory Doctorow calls our attention to the fact that, in the US of A, three companies control the market for school lunch payments, and they hit poor families with junk fees that go up to 60% of what families pay.

https://pluralistic.net/2024/07/26/taanstafl/#stay-hungry

Now, some of you might have seen newer economics papers refer to something called “mode of provisioning”. The concept is not very intuitive, but – I believe – the story of school lunch payments is great to explain it.

Some of these papers come up with dramatic – and often very encouraging – results. As a recent example, consider How much growth is required to achieve good lives for all? Insights from needs-based analysis by Jason Hickel and Dylan Sullivan

https://doi.org/10.1016/j.wdp.2024.100612

This paper comes up with a terrific punchline: you could provide everyone on the planet with “decent living standard” (I will define that in a minute) with as little as 30% of the energy and materials that we consume now. This is surprising, especially given that now we are nowhere near those levels of global welfare: Hickel and Sullivan cite an upcoming paper by Hoffman et al. that find over 95% of residents of low- and middle-income countries are deprived over at least one dimension of the decent living standard! So how is it that we could technically vastly improve our welfare with one third of the resources we are spending now? There must be a gigantic source of inefficiency lying around, but what is it?

To answer this question, I need to backtrack a little and introduce needs-based analysis. This approach grew out of the dissatisfaction with the dominant method for measuring poverty, associated with the World Bank. This consists of choosing a “poverty line”, which is a level of per capita income. People who earn less than that level are labeled as poor. The World Bank defines extreme poverty as the conditions of the people whose income is lower than 1.9 dollars a day, measured in purchasing power parity (PPP).

PPPs were invented to normalize monetary measures to the different cost of living in different countries. Intuitively, a salary that barely allows a single individual to survive in Tokyo might support comfortably a family of four in Bucharest. But PPPs come with all sorts of statistical pitfalls. The one that interests us here is this: they are calculated on the basis of a basket of goods that attempts to account for a broad range of goods and services, including those that are irrelevant to measuring poverty – like jewelry, luxury restaurants, commercial airfare. In this situation, if the prices of essential goods rise faster than the growth of PPP income, poverty might increase.

To overcome this problem, needs-based analysis takes a different approach to measuring poverty. It starts by defining poverty as the inability to procure a chosen basket of physical goods and services, not income: for example, Allen’s basic needs poverty line is defined as 2,100 calories per day, plus certain quantities of protein, fat and mineral, plus some clothing and heating, plus 3 square meters of housing. One person is poor according to this definition if their income does not permit them to purchase this basket in full. To calculate how many people live in poverty in a given country, economists can now compare household income data with the price of this basket.

https://doi.org/10.1146/annurev-economics-091819-014652

This is where the mode of provision comes in. Consider, for example, China. Extreme poverty – as measured by the share of the population which did not have access to Allen’s basic needs basket – was, in 1981, 5.6%, much lower than in countries like Brazil or Venezuela – which stood at around 30%, despite their per capita incomes being around five times that of China. China’s low rate of extreme poverty was due to socialist policies that ensured basic necessities like food and housing were widespread and affordable. The capitalist reforms of the 1990s, while contributing to developing China’s manufacturing base, coincided with a large increase rate in the rate of extreme poverty, which peaked at 68% (!) before finally returning, in the 2010s, to the level of the 1980s. The paper by Hickel and Sullivan mentions other cases in which extreme poverty increased even as PPP per capita income was growing: Brazil, Indonesia, Kyrgyzstan.

The paper then goes on to discuss the relationship between growth and poverty, when poverty is measured in PPP income. I, instead, want to reflect on the “socialist policies” mentioned by the authors in passing. What might they be? 1980s China was a planned economy. One can easily imagine meetings of the Central Committee of the Chinese Communist Party deliberating to allocate resources like construction materials and workforce to construct X buildings in province Y, or to direct their vehicle factories to build more tractors and fewer cars for private transportation so that agricultural output would increase. But it is just as easy to imagine policies that obtain similar results by deploying appropriate incentives, such as taxes and subsidies, while leaving production decisions to private businesses. For example, the Italian government decided that its post-COVID recovery stimulus would target retrofitting the housing stock for better insulation, in the interest of reducing household consumption of fossil fuels. Households could claim a tax credit of up to 110% of the money spent on insulation. This process was no shining example and had plenty of problems, but it did lead to a robust rise in overall employment, even in presence of a limited economy-wide growth. This means that the (fully capitalist) Italian economy redirected part of its capacity to retrofitting the country’s housing stock for better insulation. In the bargain, it also got more jobs (construction is labour-intensive) and less precarity.

Having established that “socialist policies” can be enacted also in non-socialist economies (as long as they have robust governance of the economy), it’s time to go back to the mode of provisioning, and to those American companies taking a 60% cut on the lunch money of poor schoolchildren.

Suppose you are the minister of education, and your problem is to make sure that all children eat healthy food at school. You already made sure that school cafeterias serve healthy menus. However, there’s a problem: some of those children come from poor families, and those families might be tempted to reduce their expenses by giving children, instead, cheap processed food containing only empty calories. You have an idea: you could give each poor child an electronic wallet, containing electronic cash financed by your ministry, which can be only spent at the school’s cafeterias. Now that you have come up with that, you need to choose a way to make this service available: a “mode of provision”.

One solution is direct provisioning. Your ministry takes it on itself to produce the simplest electronic wallet possible, ideally starting from an existing open source solution that you would then contribute to maintaining. This solution, like any other, will still need to cover its running costs by taking a cut from the transactions involved; but, given economies of scale, you can imagine these costs to be of the order of magnitude of 1% of the resources your ministry credits to these wallets.

Another solution is market provisioning. Your ministry allocates the money for school lunches, but it leaves it to fintech companies to provide wallets, and cover their own costs, plus profit, by taking a cut. At this point, neoclassical economics usually invokes the Coase theorem to conclude that, in a world of perfect information and perfect competition, the costs of making something in house are the same as those of buying it on the market. But we do not live in that world: we live in the world of Myschoolbucks, Schoolcafé, and Linq Connect. In this world, a transaction comes down at 8% for the relatively affluent parents who are paying for school lunches out of pocket, and at up to 60% for the poorer ones, for which it is your ministry, hence the taxpayer, who is footing the bill.

So, with direct provisioning, buying one euro of school lunches will cost you, say EUR 1.01. With market provisioning, it will cost you up to EUR 2.50 (coincidentally, these numbers are not so far from those reported in Hickel and Sullivan’s paper). Where does the extra EUR 1.49 go? If we imagine both solutions use the same tech, which costs the same EUR 0.01, it goes into shareholder profit, where it is, presumably, used to finance the consumption of things like luxury cars, commercial air travel and so on. That consumption implies that, with market provisioning, school lunches need a lot more energy and materials to land on children’s plates; those extra energy and materials are needed to manufacture and deliver those luxury consumption goods. Without the incentives provided by the latter, private sector companies will have no reason to provide children with electronic wallets with which to pay for school lunches.

This explains the impressive efficiency gains associated to changes in the mode of provisioning estimated in papers by New Economics authors such as Millward, Hickel, Steinberger and others. It gives me a lot of hope, because it means we can massively increase our ability to satisfy human needs while staying within planetary boundaries at the relatively modest price of curbing the luxury consumption of the 1%.

Photo credit: Sustainable Economies Law Center on flickr.com, CC-BY

Green New Deal redux: reflecting on the American Climate Corps

Leave a reply

This week, in the United States of America, the Biden-Harris administration has launched the American Climate Corps. Formally an interagency initiative of the US Federal government, the ACC has the stated purpose of recruiting thousands of young people, and putting them to work on federal programs aimed at climate change prevention. The idea is to build up a workforce that has the skills necessary to running a successful low-carbon economy going forward.

There are several areas of intervention, from clean energy to community resilience. I recommend reading the full list of the tasks the ACC sets for itself (link – it works as I write this, but the website is in beta and might change by the time you read it. I also took a screenshot): it is very inspiring. For example, look at the “urban areas” category:

What you will do

Advance environmental justice to ensure all Americans can live in healthy, thriving communities

Address extreme heat by planting trees and deploying strategies to expand cool communities

Assist neighbors in public housing communities by educating residents on sustainability and energy efficiency.

There is an unmistakable Green New Deal flavour here. The narrative is not technocratic, but includes an explicit element of social justice. And it’s not just the narrative: as a policy instrument, the ACC is strongly Keynesian, even social-democratic in the Northern European sense. It is Keynesian because it seeks to address climate change mitigation not by encouraging technical progress, but by throwing at the problem tens of thousands of people that use existing technology. And it is social-democratic, because these jobs are not only meaningful in scope, but decent employment, offering training, support for education, healthcare, childcare, transportation, housing, and fast-tracking into federal employment. Not coincidentally, the ACR explicitly claims the legacy of President Franklin Delano Roosevelt’s Civilian Conservation Corps.

Reading through the job descriptions of the positions opened in the first cohort of the ACC, one finds a sense of urgency and mobilization towards a collective goal. It’s worth reading a few in their entirety (they are very short). For example, consider the position of AmeriCorps NCCC Team Leader based in Sacramento, California:

Project summary

This position will help to preserve and enhance a community’s natural resources by working on trail development and maintenance, planting trees, removing invasive plant species, cleaning up rivers, streams, and beaches, performing water quality assessments, and leading environmental education workshops and camps for youth.

Opportunity description

Leaders will lead a team through direct, hands-on service in the areas of natural and other disasters, infrastructure improvement, environmental stewardship and conservation, energy conservation, and urban and rural development. Your team could be doing anything from building a house to running a youth summer program, so adaptability is key! As a Team Leader, you will be crucial to your team’s success. You’ll be responsible for directing, motivating, and mentoring, a diverse team of young people. There are as many as 30 openings for this position.

Benefits

Education benefit

Housing

Healthcare

Child care

Relocation expenses

Requirements and qualifications

Requirements: Must be a US Citizen or a Lawful Permanent Resident of the US. Must have a valid driver’s license or plan to have one by the time you start. Must pass an initial drug screening test upon arrival to the program.

Preferred qualifications: No experience required.

There is a refreshing absence of HR overhead, multiple interviews and tests and so on. The purpose is clear and collective. People will need to adapt, so the main ingredients to succeed are will, ingenuity and teamwork. There are 30 positions, so no cutthroat competition. No particular credentials required. It feels like the army: it accepts almost anyone, and then matches people with what needs to be done. There is plenty of work to be done, so labour demand is no issue. Even knowledge-intensive positions require little more than motivation, as in the case of the 75 Innovator Fellows with the Department of Energy:

Requirements: College degree (Bachelor’s, masters, doctoral). Interest in areas such as renewable energy, energy efficiency, and/or sustainable transportation technology and policy, electric grid resilience and modernization, and Tribal energy deployment.

Preferred qualifications: No experience required but familiarity with energy issues, policies, and programs a plus. Successful fellows are highly motivated and take initiative.

The ACC has 20,000 positions in the pipeline. But its ambitions are larger: the administration seeks 8 billion dollars to recruit 50,000 more people a year until 2031. This would mean that, by the end of 2031, over 350,000 people will have served in the Corps. For a comparison, about 3 million people served in Roosevelt’s CCC.

Maybe I am a hopeless romantic; certainly I am not immune to occasionally seeing what I want to see. But, from where I’m standing, the ACC has the potential to be the flagship Green New Deal policy. It delivers climate action, workforce upskilling, workers’ rights and Keynesian benefits, all at the same time. It has the scale and the lineage. If the CCC’s experience is anything to go by, it will lift the morale of those participating in it, and will be hugely popular. I can only wish for its success, and its replication at scale everywhere in the world. Cory Doctorow, in his novel The Lost Cause, imagines something very similar, but under the aegis of the United Nations ("Blue Helmets). In my (admittedly biased) opinion, that would be an even better idea, and if I could join a United Nations Climate Corps I would do it in a flash.

Difficult conversations: climate and economic growth in the Global South

Leave a reply

I am fascinated by the current resurgence of political economy, so much so that I started identifying as a post-growth economist. By wearing this badge, I (and others) mean to say that growth can not be a goal of economic policy. Neither good nor bad in itself, growth should be assessed relatively to how it affects humans and the planet we inhabit. Once you factor in the theoretical and empirical link between economic growth and emissions of greenhouse gases, it becomes clear to me that generalized growth is incompatible with preserving the conditions humanity enjoyed during the holocene, so really bad. In the Global North. In the Global South, it’s an entirely different story.

This is where Ken Opalo comes in. Opalo is a political scientist based in the United States of America. Originally from Nigeria, his academic interests center on the African continent; he runs a very informative blog on African economies and societies. In a recent post, he takes on degrowth and post-growth types like myself. He starts by pointing out that energy poverty is a bad thing, as we all agree. As climate change progresses, it gets even worse, because (energy-) poor people have no shield to defend them against its effects. This means that not only they are worse affected in the static sense of suffering more immediate damage, but also that this damage slows, blocks, or reverses developmental dynamics. His example; schools in South Sudan were recently ordered by the government to close because extreme heat was making classroom learning impossible. The time not spent in education makes it harder for the South Sudanese workforce to achieve badly needed productivity gains. Another example: energy poor people burn firewood to cook, and that is very bad, both for deforestation and for their own health. Sick people have low productivity, so again, energy poverty begets more poverty.

Opalo is adamant: low-income countries simply must grow. Without growth, there can be no transition.

These countries need (to) grow as fast as possible so they can have cash for infrastructure that can withstand flooding and extreme temperatures; agricultural technologies and infrastructure that are resilient to climate change; and yes, investments in green technologies for the future.

nHe then goes on to point out that the current policy discourse on climate is used to pressurize the governments of low-income African nations into policies that perpetuate energy poverty. Climate agendas in the region revolve around carbon sinks and conserving biodiversity, with no mention of the need to eliminate energy poverty. Why would they accept something like this? Because of carbon credits. High-income countries, according to Opalo, would like to use low-income ones as “reserves”, places where they can buy the carbon credits to continue running their (our) industries and trasport.

This is very uncomfortable. From where Opalo stands, climate policy is reminescent of the Washington Consensus of the 1990s: policy prescriptions that will always hurt the poorest the most, cloaked in intellectual respectability. Degrowth economics has replaced the Chicago School; and climate activists have joined the bankers in standing behind these institutions. But the violence is the same.

The reality is more nuanced. Degrowth academics have described a direction of travel where high-income countries degrow aggressively to preserve the planet, whereas low-income ones grow to satisfy human needs. But degrowth academics do not make policy, and Opalo has a solid point when he fears that their ideas, once they reach deployment, will have been transformed to make them politically viable. That generally means that they do not attack frontally powerful interests. The Global North bribing via carbon markets the Global South to keep it energy-poor is, unfortunately, a plausible outcome.

But Opalo’s contribution has also a major problem, which is this claim:

[…] development gives rise to less energy-intensive sectors, efficient use of energy, and the ability to invest in cleaner energy (including renewables).

This is not factually wrong, but we now know it is not enough. Developed economies have reduced their domestic emissions by the simple expedient of exporting them, together with large swaths of the supply chains behind our hi-tech consumption. Emissions associated to one dollar of domestic consumption has, in general, not declined. Additionally, and critically, absolute emissions have continued to increase, more or less linearly with GDP. This point was made very forcefully by Timothée Parrique at the Beyond Growth conference in 2023 (I strongly recommend watching the 10-minutes video of his intervention). In a nutshell, Parrique says that green growth must satisfy five requirements:

Absolute decoupling between environmental pressures and economic output.
That needs to work across all environmental pressure: not only carbon, but materials extraction, biodiversity loss, air pollution and so on.
And needs to be done wherever these emissions occur, not just at home but wherever economic activities related to growth at home occur.
And needs to be done at a pace which is sufficiently fast to avoid ecological collapse.
And needs to be maintained over time.

Parrique’s conclusion:

This type of green growth has not been achieved anywhere on Earth, and I have not seem convincing evidence showing that it could.

For a more academic reading, try this paper by Jefim Vogel and Jason Hickel.

So, Opalo points to a real problem: climate “degrowthist” agendas could very well turn out extremely unjust for people in the Global South, despite the best intention of degrowth economists. But green growth is not a credible solution to that problem. The debate on the role of economic growth in environmental collapse points to a difficult conversation ahead about what we prioritize provisioning (for example lifting the Global South out of energy poverty) and what we do not prioritize or actively discourage (for example élite hyperconsumption, private jets etc.). It’s an uncomfortable and divisive conversation, and things could get ugly. But have it we must. Pretending we can be saved by what climate activist Greta Thunberg calls “the fairy tales of endless economic (green) growth” will not help anyone.