Pauline Ravillard (Intern for the Production, Productivity and Management Division, ECLAC)
On Monday 10th of November 2014, Samuel Bowles came for the first time to the Economic Commission for Latin America and the Caribbean in Santiago of Chile, which according to him, strongly contributed to his intellectual journey. He presented his book “The New Economics of Inequality and Redistribution” (2012, Cambridge University Press, also translated into Spanish). Samuel Bowles is a renowned American economist who focuses on the issues of income distribution, microeconomics, economic theory, theory of institutions and behaviour economics. He holds a BA from Yale University, a PhD from Harvard University and is currently teaching and working at the Santa Fe Institute (New Mexico State) as the Director of the Behavioural Science Programme, while being Professor Emeritus at the University of Massachusetts in Amherst.
He started his presentation by highlighting that most questions relating to inequality and economics had either been left unanswered or had been wrongly answered, hence his relentless interest in inequality. He first became conscious of the latter’s omnipresence in his childhood as he was living with his family in India. He realized that he was an average student among his Indians colleagues. Why India was less developed than the US? Other forces beyond intellectual merit or effort were at work.
As he went on sharing anecdotes with the audience, he also mentioned his encounter with Martin Luther King in 1968, shortly before the latter’s murder, who had solicited him to write papers for the Poor People’s March. At the beginning of his career he was part of the very first group to ask for higher wages in the United States (that was successful when minimum wage was raised to US$8.50).
In the early 1980s, the Theory of Contracts advanced when it was acknowledged that contracts were not complete. Not only could they not be enforced, such as in the case of bankruptcy, but they also needed to adapt to the labour and credit markets, as those could not just be defined by contracts. The need to rethink contracts was the first point of his presentation. He suggested that stronger institutions and participatory management in the firm were efficient tools to reinforce contracts and ensure that higher effort would imply higher benefits. He also added that the “stick” was more often used than the “carrot”, although this may be inefficient (he gave the examples of raising wage for the carrot and of installing TV cameras within the firm for the stick). A second point he made was that there has been a change in Behavioural Economics. He argued that typical economists who implemented public policies according to the assumption that people were self-interested were misled, as people would not be voting if they were truly selfish. He spoke of a need to move away from those traditional ideas and to conduct deeper research on citizens’ behaviour and choices. He gave three examples that rebuked the traditional understanding of human behaviour. The first one was that US citizens would be willing to help the poor, unless the latter caused harm or injustice. In addition, the same people would be willing to give money to actually punish those that are poor. A second observation was that people would actually be willing to pay higher taxes if it was to get the most socially discriminated people out of poverty. Finally, most poor people do not actually think that taxes should be higher to alleviate their poverty. These examples enhance Bowles’ view that economists and politicians need to move away from the traditional conception of redistribution and from the idea that most voters are selfish. The final point made was that neoclassicism was committed to non-increasing returns to scale. Though in the 80s, the most popular theories were the equity-efficiency trade-off and the Coase theorem, they were later pushed aside with the advance of technology. With the latter, increasing returns were not to be neglected and multiple equilibriums became plausible. He highlighted the fact that to understand the shift in society and in equilibrium, history needed to be accounted for. As such, while in the past inequality was inter-generational with an economy based on “grains and steel”, it now persists not so much because of inter-generational inheritance, but rather because of technological gaps, now that the economy has become what he qualifies as “weightless”. Once again, the role of institutions and more specifically of property rights becomes crucial in tackling these gaps that engender inequality. This point was discussed into more depth during the subsequent debate. It was mentioned that though physical assets were transmitted from one generation to another, in the case of the Latin American region the inter-generational transmission was not limited to physical assets, but also to non-physical ones. He cited education, knowledge and networks as examples. Bowles’ response, along the same line as his previous argument, was that the correlation between parents and children’s knowledge, and anything else genetically transmitted such as height or IQ, was actually weak. By contrast, though the inheritance of endowments (cows, land and so on) leads to a different story, today the issue of inequality really is about gaps in networks and technology, rather than land. Overall, though Bowles started his talk by mentioning how “economists are schizophrenic when it comes to inequality”, he represents an exception as his work has extensively focused on this issue not only by relating to his own experience, but also by linking it to other fields of research and by opening the path to future study with new perspectives.