New Economist

How China thinks

We know a lot about the Chinese economy - but how do the Chinese think? What do they discuss? Are they all Maoist automatons, or is there a lively debate occurring which Western observors are barely aware of? Veteran think tanker Mark Leonard favours the latter view, which he puts forward at some length in his new book, What does China think?

This is also the lead story in the March 2008 issue of Prospect magazine. Leonard makes some inteersting points in his cover piece, China's new intelligentsia. He documents the shift away from Deng's 'growth at any price' approach, as 'new left' views gain ground. Here are some excerpts from the article:

I had imagined that China's intellectual life consisted of a few unbending ideologues in the back rooms of the Communist party or the country's top universities. Instead, I stumbled on a hidden world of intellectuals, think-tankers and activists, all engaged in intense debate about the future of their country. I soon realised that it would take more than a few visits to Beijing and Shanghai to grasp the scale and ambition of China's internal debates. Even on that first trip my mind was made up—I wanted to devote the next few years of my life to understanding the living history that was unfolding before me.

Over a three-year period, I have spoken with dozens of Chinese thinkers, watching their views develop in line with the breathtaking changes in their country. Some were party members; others were outside the party and suffering from a more awkward relationship with the authorities. Yet to some degree, they are all insiders. They have chosen to live and work in mainland China, and thus to cope with the often capricious demands of the one-party state.

We are used to China's growing influence on the world economy—but could it also reshape our ideas about politics and power? This story of China's intellectual awakening is less well documented. We closely follow the twists and turns in America's intellectual life, but how many of us can name a contemporary Chinese writer or thinker? Inside China—in party forums, but also in universities, in semi-independent think tanks, in journals and on the internet—debate rages about the direction of the country: "new left" economists argue with the "new right" about inequality; political theorists argue about the relative importance of elections and the rule of law; and in the foreign policy realm, China's neocons argue with liberal internationalists about grand strategy. Chinese thinkers are trying to reconcile competing goals, exploring how they can enjoy the benefits of global markets while protecting China from the creative destruction they could unleash in its political and economic system. Some others are trying to challenge the flat world of US globalisation with a "walled world" Chinese version.

Globalisation: good for jobs?

Chris Giles summarises a new report on globalisation by the Ifo-affiliated European Economic Advisory Group in today's Financial Times: Globalisation ‘a blessing’ for west Europe

Increased trade, outsourcing and offshoring do not create unemployment but boost the number of jobs in advanced economies, a study of European labour markets says on Tuesday. The European Economic Advisory Group...argues that although globalisation can lead to a fall in demand for certain types of skill, it also tends to sweep away job-destroying rigidities in labour markets.

The evidence from the group’s work suggests the positive effects of globalisation outweigh the negative effects. Although the group concedes that its statistical work remains “crude”, the report concludes that globalisation is likely, if anything, to lead to long-term rises in employment. “If so, globalisation will not be a curse for employment in western Europe, it could instead turn out to be a blessing,” the report says.

The report in question is Chapter 3 of the EEAG's seventh report on the European Economy, Europe in a Globalised World, launched today in Brussels. It warns of "dark clouds" in the US, but no recession in Europe. The chapter, The effect of globalisation on Western European jobs: curse or blessing? (PDF 2.9Mb), comes to more qualified and tentative conclusions than the FT article suggests:

Our basic message is that we probably should not expect globalisation to have adverse effects on overall employment in Western Europe in the long run if one takes all effects into account. It is true that trade integration and factor mobility vis-à-vis low-wage economies are likely to cause unemployment if European labour markets remain rigid. But there is a good chance that globalisation will help reduce these rigidities. Politicians in some countries may try to swim against the tide and uphold or even strengthen regulations in the labour market, such as Germany is currently doing. But in the end, globalisation is likely to strengthen the incentives to deregulate. Therefore, the net result could be that employment is promoted.

If globalisation does not hurt employment, it will produce aggregate gains. There is a possibility that globalisation could eventually benefit almost everyone, although some will gain more than others. However, there is also a fair amount of evidence that economic integration with low-wage economies reduces the relative demand for less-skilled workers and their relative compensation. So, it is also possible that there could be a large group of losers.

But maybe that's the wrong way of looking at it? The authors suggest we should examine how effectively our institutions handle a more global world:

It makes more sense to recast the issue in the following way: are our labour market institutions and our welfare states designed well enough so that the gains from trade reform will be broadly shared? Or are they likely to breed opposition to these reforms?

The 34 page chapter ends with a useful discussion of the possible components of schemes to compensate the potential losers from the globalisation process. A thoughtful piece, deserving a wide readership.

Winning American Idol: try to be last

If you are appearing on American Idol or the X-Factor, try to be one of the last to sing. That's the conclusion from a new paper presented at a University of Westminster seminar today. Lionel Page and Katie Page look at an important topic - the evaluation of a sequential order of performances. Their paper, Biases in sequential performance evaluation, a field study on the Idol series (PDF), drew on a large dataset based on the ranking of contestants in live pop Idol shows in 8 countries (Australia, Brazil, Canada, Germany, India, Netherlands, UK, USA). That's 1,522 performances from over 165 shows. They found two main biases which influenced overall sequential performance ratings:

Our results suggest that the two mechanisms, memory and direct comparison, both play a role in the order bias. With respect to memory it appears that both primacy and recency effects are implicated when sequentially evaluating performance. Irrespective of ability, contestants who perform first are more likely to be positively evaluated than those who come in second and third positions, which provides evidence of a primacy effect. Contestants who perform in the later serial positions (particularly last position) have the largest advantage with respect to positive evaluations, implying a strong recency effect.p>

...The second bias we demonstrate is a direct comparison effect with the previous contestant. Specifically, one's performance evaluation is influenced by the evaluation of the previous contestant. If you perform after a weak contestant there is a bias such that you are more likely to be evaluated poorly than if you perform after a strong contestant. Therefore, we find evidence for an assimilation effect with respect to sequential judgments.

...Overall, we show that these two effects both operate and are important explanatory mechanisms in the evaluation of sequential performance.

Something to ponder when you go speed dating, or get a call to say you've been shortlisted for a job interview and are asked what slot you'd like.

UPDATE:

WSJ's Matt Phillips has obviously read my post, writing about the paper at the Journal's real Time Economics blog: Last Shall Be First in Idol Economics

Meet the authors...

There may be no such thing as a free lunch - but London has plenty of free public lectures. Readers living in the old dart have the opportunity to hear about two new and - by all acounts - exciting tomes.

This Wednesday evening (6 February, 6.30pm) undercover economist and FT blogger Tim Harford is giving a public lecture based on his new book The Logic of Life at the London School of Economics. Event details here. The event is free and no ticket is required, but I'd recommend turning up early, as these events fill up fast. Here is the jacket blurb for the US hardcover, published by Random House:

Life sometimes seems illogical. Individuals do strange things: take drugs, have unprotected sex, mug each other. Love seems irrational, and so does divorce. On a larger scale, life seems no fairer or easier to fathom: Why do some neighborhoods thrive and others become ghettos? Why is racism so persistent? Why is your idiot boss paid a fortune for sitting behind a mahogany altar? Thorny questions–and you might be surprised to hear the answers coming from an economist.

...In this deftly reasoned book, Harford argues that life is logical after all. Under the surface of everyday insanity, hidden incentives are at work, and Harford shows these incentives emerging in the most unlikely places. Using tools ranging from animal experiments to supercomputer simulations, an ambitious new breed of economist is trying to unlock the secrets of society. The Logic of Life is the first book to map out the astonishing insights and frustrating blind spots of this new economics in a way that anyone can enjoy.

The Logic of Life presents an X-ray image of human life, stripping away the surface to show us a picture that is revealing, enthralling, and sometimes disturbing. The stories that emerge are not about data or equations but about people: the athlete who survived a shocking murder attempt, the computer geek who beat the hard-bitten poker pros, the economist who defied Henry Kissinger and faked an invasion of Berlin, the king who tried to buy off a revolution.

Once you’ve read this quotable and addictive book, life will never look the same again.

Judging by this the LSE lecture should be a lively romp - though promising "an x-ray image of human life" seems just a tad over-hyped. I'm not really sure why the US edition is subtitled The Rational Economics of an Irrational World, but the UK edition subtitle (above) was chnaged.

Meanwhile, next Tuesday evening (12 February, 6.30pm), Columbia University sociologist Sudhir Venkatesh talks about his new book Gang Leader for a Day at the RSA. Even details here. The event is free, but you have to register online. The book has generally been well recieved (though Tyler Cowen thought it "somewhat evil"). Here is the blurb for the London launch:

Sudhir Venkatesh is a young sociologist who studied a Chicago crack-dealing gang from the inside; he captured the world’s attention when it was first described in Freakonomics. Sudhir befriended members of one of the hardest crack dealing gangs in Chicago in order to produce sociological research that the academic world had never managed to obtain before. He followed the gang (the Black Kings) for the best part of ten years and will give a frank, accessible account of what he learnt. He witnesses drive-by shootings, drug dealers, gun crime, prostitution but also a community spirit in the face of poverty and the inner workings of gang culture from the leader down to the "shorties" (foot soldiers).

UPDATE: Tim Harford informs us on his blog of Another chance to see… (London speaking events)

I was astonished when the enormous Old Theatre at the LSE was packed out at least fifteen minutes before I gave my talk on 6 Feb. Lots of people were turned away, including some for whom I’d reserved seats. I’m a bit embarassed about that, although obviously pleased that the event was popular.

But… there will be another chance to hear me talk about “The Logic of Life” at the Cass Business School on 12 March. Details are here - along with details of other talks in The Lake District, Glasgow, Oxford, Cambridge, Bristol, Singapore, Wellington and several Australian cities too. Looks like we’ll arrange a couple more London events later in the spring, too.

Rethinking free trade?

Is support for free trade losing ground amongst economists? Business Week Washington bureau chief Jane Sasseen writes of an apparent shift in mood: Economists Rethink Free Trade:

..something momentous is happening inside the church of free trade: Doubts are creeping in. We're not talking wholesale, dramatic repudiation of the theory. Economists are, however, noting that their ideas can't explain the disturbing stagnation in income that much of the middle class is experiencing. They also fear a protectionist backlash unless more is done to help those who are losing out. "Previously, you just had extremists making extravagant claims against trade," says Gary C. Hufbauer, a senior fellow at the Peterson Institute for International Economics. "Now there are broader questions being raised that would not have been asked 10 or 15 years ago.

So the next President may be consulting on trade with experts who feel a lot less confident of the old certainties than they did just a few years ago. From Alan S. Blinder, a former vice-chairman of the Federal Reserve and member of the Council of Economic Advisers in the Clinton Administration, to Dartmouth's Matthew J. Slaughter, an international economist who served on President George W. Bush's CEA, many in the profession are reevaluating the impact of globalization. They have studied the growth of low-wage work abroad and seen how high-speed telecommunications make it possible to handle more jobs offshore. Now they fear these factors are more menacing than they first thought.

No one is suggesting that trade is bad for the U.S. overall. According to estimates by the Peterson Institute and others, trade and investment liberalization over the past decades have added $500 billion to $1 trillion to annual income in the U.S.

Yet concern is rising that the gains from free trade may increasingly be going to a small group at the top. For the vast majority of Americans, Dartmouth's Slaughter points out, income growth has all but disappeared in recent years. And it's not just the low-skilled who are getting slammed. Inflation-adjusted earnings have fallen in every educational category other than the 4% who hold doctorates or professional degrees. Such numbers, Slaughter argues, suggest the share of Americans who aren't included in the gains from trade may be very big. "[That's] a very important change from earlier generations, and it should give pause to people who say they know what's going on," he says.