What is in the foreground of this picture. It is somewhere in Southern England around Salisbury.  The winning entry will fly first class to London to pick up the Troppo Mercedes Sports from the panelbeater – who’s had about enough of it sitting there since we dropped it off a few years ago.


How academics, ministry experts, and civil society are losing: is the government now for the few?

The latest federal budget in Australia by the Liberal Party was a real break with the recent past in which politicians were reluctant to offend any large group of voters and in which the status quo with respect to entitlements was avidly kept. There was a bit of playing around with extra money under Labor – spent on projects like the NBN – and there were some attempts at taxing the richest sectors more, such as the carbon tax, but it was largely a case of ‘All quiet on the Western front’.

This budget was different and seems to herald a shift in orientation of our political elites, not just the Liberal Party. What seems to have happened is that the political elites now take their cue from well-organised interest groups, to the detriment of the unorganised majority, effectively trailing the US by about a decade. The US saw the same move towards a ‘money talks’ society about 10 years ago, including the lifting of the Glass-Steagall laws that were meant to prevent the kind of financial piracy that lead to the GFC. In the US the trend is again reversing, but here we are just getting to the crest of money-talks politics. This is dressed up as going towards ‘small government’, but in reality we are talking about Government for the few. It is an inequality increasing agenda that rewards topic-specific organisation. Let me expand.

As Ross Gittins has pointed out in a whole set of articles on the budget, the headline changes are quite dramatic for the majority, especially for young poor people: the Gonski reforms, benefitting the least able within the schooling system, have been axed; the Carbon Tax, a tax mainly on a couple of big firms (mines and electricity generators), has been repealed; the age-pension, which is one of the main transfer programs, has now been indexed to inflation rather than average wages, which implies a 2% reduction in relative terms per year and 25% within about 12 years; the public school system and the hospitals will similarly see their commonwealth subsidies indexed to inflation, ensuring the same 25% decline in about 12 years; the cuts in parenting support similarly hit large parts of the population, whilst the effective halving of the unemployment benefits for the young (via the 6-months-on, 6-months-off rules) are estimated by the Department of Social Services to eventually impoverish close to half a million people.

One might see all this as indications of a move towards ‘small government’ and ‘starving the beast of government of funds’. That is certainly the storyline kept up by the Coalition and one that business economists bandy around also. It was the story of the Bush years in the US. If you look closely though, you will find it is not about small government at all. For you would have missed all the areas where government just got bigger. Substantially bigger. So look at the other changes to see the full picture. Continue reading

Employee satisfaction and corporate performance: it helps if firms can profit from the additional satisfaction they provide

Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around The World
by Alex Edmans, Lucius Li, Chendi Zhang – #20300 (CF LE LS)

We study the relationship between employee satisfaction and abnormal stock returns around the world, using lists of the “Best Companies to Work For” in 14 countries. We show that employee satisfaction is associated with positive abnormal returns in countries with high labor market flexibility, such as the U.S. and U.K., but not in countries with low labor market flexibility, such as Germany. These results are consistent with high employee satisfaction being a valuable tool for recruitment, retention, and motivation in flexible labor markets, where firms face fewer constraints on hiring and firing. In contrast, in regulated labor markets, legislation already provides minimum standards for worker welfare and so additional expenditure may exhibit diminishing returns. The results have implications for the differential profitability of socially responsible investing (“SRI”) strategies around the world. In particular, they emphasize the importance of taking institutional features into account when forming such strategies.

How patents block innovation: just where you’d expect they would

Patents and Cumulative Innovation: Causal Evidence from the Courts
by Alberto Galasso, Mark Schankerman – #20269 (IO PR)

Cumulative innovation is central to economic growth. Do patent rights facilitate or impede follow-on innovation? We study the causal effect of removing patent rights by court invalidation on subsequent research related to the focal patent, as measured by later citations. We exploit random allocation of judges at the U.S. Court of Appeals for the Federal Circuit to control for endogeneity of patent invalidation. Patent invalidation leads to a 50 percent increase in citations to the focal patent, on average, but the impact is heterogeneous and depends on characteristics of the bargaining environment. Patent rights block downstream innovation in computers, electronics and medical instruments, but not in drugs, chemicals or mechanical technologies. Moreover, the effect is entirely driven by invalidation of patents owned by large patentees that triggers more follow-on innovation by small firms.

Australia: blokey from the get-go

It’s Raining Men! Hallelujah?
Pauline Grosjean and Rose Khattar

We document the implications of missing women in the short and long run. We exploit a natural historical experiment, which sent large numbers of male convicts and far fewer female convicts to Australia in the 18th and 19th century. In areas with higher gender imbalance, women historically married more, worked less, and were less likely to occupy high-rank occupations. Today, people living in those areas have more conservative attitudes towards women working and women are still less likely to have high-ranking occupations. We document the role of vertical cultural transmission and of homogamy in the marriage market in sustaining cultural persistence. Conservative gender norms may have been beneficial historically, but are no longer necessarily so. Historical gender imbalance is associated with an aggregate income loss estimated at $800 per year, per person. Our results are robust to a wide array of geographic, historical and present-day controls, including migration and state fixed effects, and to instrumenting the overall sex ratio by the sex ratio among convicts.

Keywords: Culture, gender roles, sex ratio, natural experiment, Australia
JEL: I31 N37 J16

Open Data and the G20

OpenGovData Venn

From a recent column for the AFR. The report can be downloaded here.

Earlier this year our Treasurer, Joe Hockey, led the G20 Finance Ministers to pledge lifting GDP by 2 percent over ‘business as usual’ over the next five years. It’s a big win for the Treasurer, but how can it be delivered? There aren’t many easy options for reform on that scale that don’t create swathes of losers around whom the media then swarm, thus amplifying the inevitable campaigns against change.

But one opportunity is sitting under our noses. In a knowledge economy, data is the new infrastructure. The more open it is, the more it can be reused repurposed. The more it attracts value adding as business and civil society find clever new ways of making it ever more useful. Most data Google Maps delivers has existed for decades. But government open data policies – and Google – convey open data seamlessly to your mobile as you search out your target.

That’s why, Australia’s Government implemented the recommendations of the 2009 Government 2.0 Taskforce which I chaired. But in Australia as elsewhere, high-level commitments have achieved less than they could have if they’d been seamlessly translated down to the delivery coalface as Google has with geospatial data.

Omidyar Network today releases a Lateral Economics report that estimates that a more vigorous open data commitment could grow Australia’s economy by around $16 billion per year. That’s half Joe Hockey’s G20 growth target.

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Clever new piece of work on what drove the industrial revolution

Human Capital and Industrialization: Evidence from the Age of

by Mara P. Squicciarini, Nico Voigtlaender – #20219 (DAE EFG)


While human capital is a strong predictor of economic development today, its importance for the Industrial Revolution is typically assessed as minor. To resolve this puzzling contrast, we differentiate average human capital (worker skills) from upper tail knowledge both theoretically and empirically. We build a simple spatial model, where worker skills raise the local productivity in a given technology, while scientific knowledge enables local entrepreneurs to keep up with a rapidly advancing technological frontier. The model predicts that the local presence of knowledge elites is unimportant in the pre-industrial era, but drives growth thereafter; worker skills, in contrast, are not crucial for growth. To measure the historical presence of knowledge elites, we use city-level subscriptions to the famous Encyclopedie in mid-18th century France. We show that subscriber density is a strong predictor of city growth after 1750, but not before the onset of French industrialization. Alternative measures of development confirm this pattern: soldier height and industrial activity are strongly associated with subscriber density after, but not before, 1750. Literacy, on the other hand, does not predict growth. Finally, by joining data on British patents with a large French firm survey from 1837, we provide evidence for the mechanism: upper tail knowledge raised the productivity in innovative industrial technology.

Is the struggle for equality of opportunity over?

Equality of opportunity was one of the big themes of Gough Whitlam’s 1969 and 1972 campaigns. His 1972 policy speech promised "a new drive for equality of opportunities" through reforms to education, health and urban planning. He argued that opportunity depends on the kind of investments only government can make. In his 1985 book The Whitlam Government 1972–1975 he drew on Abraham Lincoln for support:

There is, of course, nothing novel in this idea of action by governments to promote community welfare. Before he became President, Abraham Lincoln wrote: "The legitimate object of government is to do for the people what needs to be done but which they cannot, by individual effort do at all, or do so well for themselves" (p 3).

Today we’re more likely to associate this Lincoln quote with Tony Abbott or his government’s Commission of Audit. But Whitlam argued that there were important things people could not achieve on their own. Equality of opportunity was one of them. According to Whitlam, for many Australians the doors to opportunity begin closing in early childhood. In the pre-school years "inequality is rivetted on a child for a lifetime", he said. He argued that "Education should be the great instrument for the promotion of equality" but "Under the Liberals it has become a weapon for perpetuating inequality and promoting privilege." According to Whitlam, only government can make sure every Australian has access to a quality education all the way from pre-school to university.

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